Education for Tomorrow’s Choices

ETC

State Employees’ Retirement System

Thank you for taking time away from your busy work schedule to attend the

Education for Tomorrow’s Choices (ETC) workshop. It has been our experi-

ence that more questions will come to mind in the days following the work-

shop than during the workshop itself. Please allow us to assist you in finding

the answers you need.

This is the second in our series of preretirement workshops. Education for

Tomorrow’s Choices looks at your preretirement planning efforts: everything

from finances, Social Security, health & leisure to housing. Our third work-

shop, Countdown to Retirement, reviews your retirement planning efforts

and examines life after retirement.

The State Retirement Systems (SRS) hopes you will use this workshop and

corresponding workbook to establish a firm foundation for your future

retirement years. SRS will be there to assist you with any of your retirement

questions, both now and in the future. If you have questions, contact us at

217-785-7444.

• State Employees’ Retirement System of Illinois • General Assembly Retirement System• Judges’ Retirement System of Illinois

STATE RETIREMENT SYSTEMS

2101 South Veterans Parkway, P. O. Box 19255, Springfield, IL 62794-9255Internet: http://www.srs.illinois.gov E-Mail: sers@srs.illinois.gov

RETIREMENT LOOMS ON THE HORIZON

Retirement should provide you with the time to pursue a variety of

opportunities and activities. A second career, community involvement,

more time for family & friends, leisure activities and travel all loom

on the horizon. The prospect of retirement may also cause a certain

amount of concern about the challenges you face in the years ahead.

Pre-retirement planning is essential for a successful and satisfying re-

tirement. The Education for Tomorrow’s Choices workshop provides

you with basic retirement information, asks you important retirement

questions, and identifies sources for information and assistance.

Think about what kind of lifestyle you want in retirement, then begin

taking the steps needed towards achieving that lifestyle. Complete as

many of the pre-retirement planning worksheets provided in the work-

book as possible. We will do our best to help you start planning for

your eventual retirement!

REMEMBER THAT ACHIEVING HAPPINESS IN RETIREMENT DEPENDS LARGELY UPON YOUR OUTLOOK ON LIFE, AS WELL AS YOUR PLANNING EFFORTS DURING YOUR WORKING YEARS.

EDUCATION FOR TOMORROW’S CHOICESState Retirement Systems Workshop

TABLE OF CONTENTS

I. Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .p. 1 A. Goal–Setting Tests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .p. 4

II. Financial Planning. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .p. 7 A. Building a Financial Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .p. 9

1. Organization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .p. 10

2. Financial Self-Examination. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .p. 14

3. Cash Flow . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .p. 17

4. Budgets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .p. 19

B. Consumer Information. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .p. 21

C. Glossary of Financial Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .p. 27

III. Deferred Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .p. 31A. Four Investment Groups. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .p. 38

B. Distribution Choices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .p. 41

IV. Entitlements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .p. 47

V. Insurance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .p. 55

VI. Social Security . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .p. 59

VII. Estate Planning . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .p. 63 A. Legal Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .p. 75

B. Estate Planning Glossary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .p. 89

VIII. Health & Leisure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .p. 91

XI. Appendix. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .p. 101

-

1

INTRODUCTION

2

3

INTRODUCTIONGOALSEstablishing goals is one of the most misunderstood processes of life. Goal-setting is not a remedy for our shortcomings. Instead, it is the first step in the planning pro-cess. But many fail to comprehend the commitment necessary to achieve goals. Possessing goals and working to attain them is central to your well-being. Achievement is never possible except through spe-cific, clearly defined goals.

When Goals Are Set You:

• Develop a focus which enables you to channel your energies to ac-complish more in a shorter amount of time.• Identify what is important to you. The greatest waste of time is having no idea what you are sup-pose to accomplish.• Are positioned to gather data, and make judgements about that data. When goals are set, they en-able you to control the direction of change in your life. From the moment of birth, each of us has an undetermined amount of time to accomplish our dreams. So many people reach the end of their life with the vague feeling that they could have accomplished more if they had only tried harder. Usual-ly, the problem was a lack of direc-tion, rather than a failure to try. Our society does not under-stand the importance of failure in

achievement. We must be willing to risk failure. If we take the time to determine why we failed, we will usually find the answers that even-tually bring us success.

PLANNINGPlanning is the mental process of thinking through what is desired and how it will be achieved. Plans are commitments to a specific course of action. You must recognize that planning:

• Is assessing the future and making provisions for it.

• Is seeing opportunities and obstacles in the future and exploiting or combating them.

• Is reasoning about how to get where we want to go.

• Examines the causes and effects most likely to result from current decisions.

OBSTACLESIdentify the obstacles you might encounter in achieving your goal. Writing down possible obstacles will remove your fear of failure in dealing with these obstacles. Clearly identify the information you will need to accomplish your goal and determine if you’ll need professional assistance to achieve your goal. Finally, list all of the activities you are going to have to do to ac-complish your goal.

4

Assess your responses by counting the number of times you responded “Nearly Always” and multiply that number by three. Multiply the number of times you responded “Sometimes” by two, and the number of times you responded “Rarely” by one. Then add the resulting three numbers for a total score.

Nearly Always (number of responses) X 3 =

Sometimes (number of responses) X 2 =

Rarely (number of responses) X 1 =

TOTAL

SELF-AUDIT FOR GOAL SETTING Nearly Always Sometimes Rarely

1. When I set a goal, I write it down.

2. I describe my goal in specific, measurable terms.

3. I often visualize my goals.

4. My goals are achievable.

5. I set realistic deadlines for completing my goals.

6. I break a large goal into manageable units.

7. I look for the potential problems that may keep me from reaching my goals.

8. I take action to remove or minimize those potential problems.

9. I review progress toward my goals on a regular basis.

10. I know the personal rewards of reaching my goals.

ANALYZING YOUR SCORE

30 - 24 Excellent job of setting effective goals.

23 - 18 You are on your way to achieving effective goal setting. Take another look at the statements where your responses were less than “Nearly Always.” These are the areas for additional concentration.

Below 18 There are several areas in which you can improve your goal-setting.

5

MODIFIED PRERETIREMENT IDEAL-SELF ATTITUDE SCALE

Check the appropriate column with regard to how you feel about yourself.

Least Most Like Don’t Like Me Know Me 1. I am looking forward to retiring.

2. My financial status is not adequate to retire.

3. I am aware of how money can work for me after I retire.

4. I am protecting my retirement years by maintaining a healthy lifestyle.

5. I will continue to learn new things and get new ideas in retirement.

6. My choice of retirement living arrangements should be made only after serious thought.

7. I am looking forward to doing whatever I want when I retire.

8. After retirement, I must keep occupied to remain happy.

9. I believe that retirement is the best years of one’s life.

10. I practice good money management in order to have enough.

11. I seriously neglect my health because it does not matter in the years ahead.

12. I haven’t thought much about retirement.

13. I do not worry about health problems spoiling my retirement.

14. I want something useful and constructive to do to occupy my time when I retire.

15. I have close friends to keep me company when I retire. 16. Since I’ve spent my lifetime working, I’m going to sit back and loaf when I retire.

17. I will grow tired of doing what I’ve always wanted to when I retire.

18. It is not necessary to get too concerned over my choice of retirement living arrangements.

19. I believe that one cannot learn after they reach 60 or 70 years of age.

Modified Preretirement Ideal-Self Attitude Scale

Your attitudes and values dictate your decisions. Every-one needs to know why and how they make decisions, so they are aware of the con-senquences. This test will make you more aware of your attitudes in the key areas of health, finance, leisure, planning & self-image.

6

Least Most Like Don’t Like Me Know Me 20. I will put off making any plans for retirement until I retire.

21. I am uncertain as to how investment programs can aid in my retirement.

22. I will have no worry over money matters when I retire.

23. The thought of retirement scares me.

24. I am just as happy now as when I was younger.

25. These are the best years of my life.

26. My life could be happier than it is now.

27. This is the dreariest time of my life.

28. Most of the things I do are boring or monotonous.

29. Compared to other people, I get down in the dumps too often.

30. The things I do are not as interesting to me as they used to be.

31. I have made plans for things I’ll be doing a month or a year from now.

32. Compared to other people my age, I have a good appearance.

33. As I grow older, things seem better than I thought they would be.

34. I expect some interesting and pleasant things to happen in the future.

35. As I look back on my life, I am fairly well-satisfied.

36. I would not change my past even if I could.

37. To date I’ve gotten pretty much what I expected out of life.

38. When I think back over my life, I didn’t get most of the important things I wanted.

39. In spite of what people say, the fate of the average person is getting worse, not better.

40. I have gotten more breaks in life than most people I know.

41. Compared to others my age, I’ve made a lot of foolish decisions. 42. I feel my age, but it doesn’t bother me.

7

FINANCIAL PLANNING

8

NOTES

9

SOME QUESTIONS YOU NEED TO

CONSIDER:

• Where are you today?

• Where do you want to be?

• Are you willing to redefine your goals in the future?

• Are you willing to create and implement

an organized plan to attain your goals?

• What’s in it for you?

BUILDING A FIRM FINANCIAL PLAN

Why a Financial Plan?There is only one sure way to achieve financial security–identify your goals, then adopt strategies to meet them. Putting a formal plan down on paper is the best way to get a handle on what you have to do. It can help you prioritize your goals and find a way to control what might seem too much to manage. People who have achieved true financial security took an organized approach to financial management. Some did the work themselves; others hired compe-tent advisors to help them. Somehow, they made sure the job was done. The best time to start planning is today. Financial Planning is Planning For the Rest of Your Life Every single decision you make impacts your overall financial picture. That thought should un-derlie your entire approach to the financial planning process. Start by developing a financial profile of yourself, then matching that profile to your specific needs and goals.

Your profile should be about choices: your career choice, and how you choose to spend and save money. Do not neglect your physi-cal and emotional health. Keep-ing the doctor away will save you money in the future. By taking care of yourself early in life and setting good health habits, your quality of life in later years will be tremendously in-creased. Refer to the Health Section for additional information. Good health and finances make the per-fect retirement picture.

Constructing Your Financial Profile A financial profile is a snapshot of your life as you live it day-by-day. It should be the cornerstone of your personal financial plan. The more detailed the information, the better..

Your Financial Profile is a Composite of:

• Your Stage of Life • Lifestyle • Tolerance for Risk• Responsibilities• Financial Resources

10

IMPORTANCE OF ORGANIZATION

Organizing your finances is critical to sound financial planning, and provides you with an exceptional measure of security.

# 1If you’re like most people you seem to get by from year to year without a financial plan. You collect your salary, pay your bills, and keep yourself and your family housed, clothed, and fed. But what happens if a financial crisis occurs? You may find yourself lacking the funds or insurance to cover mounting bills. And what about those luxuries you’ve always longed for? Do they always seem to dangle just beyond your financial grasp? How will you pay for your children’s education, or support yourself adequately in retirement? If you talk to people who have achieved true financial security, you’ll find they took an organized approach to financial management early on.

Why do most people fail to achieve lifetime financial security?

• Lack of financial goals• Ignorance of tax laws • Poor investment strategies • Failure to take full advantage of investment programs.

The main reason is lack of organization. Organization is critical to sound financial planning.

By consolidating all of your finan-cial and personal information in one place, you can see how each part of the financial picture relates to the others. Organizing your finances pro-vides an excellent measure of secu-rity. It protects you from surprises, and places your current and future finances under a “master program” that gives you a system of checks and balances. An organized plan will help you establish a pattern of spending, saving, and investing that ensures financial stability now–and growth for the future.

11

YOUR PERSONAL FILE SYSTEM

This file system should help you organize your financial matters into one file box. Purchase a set of manila folders. Place the re-

quired information in each file. Do not be afraid to weed out old information, policies, etc., as you replace them with new ones.

HEADING CONTENTS OPERATIONAL CHECKLIST

• Personal Information sheet • Update Personal Information • Items in safety deposit box sheet to reflect any changes • Letter of last instructions • Update safety deposit box• Copy of will list as new items are added or old ones eliminated.

• List of goals • Review Budget Planning sheets• Income Statement • Revise goals, if necessary • Forecasts of income and expenses • Forecasts for short-term and long-term goals

• Purchase contract and receipt • Keep records of permanent (deed in safety deposit box) home improvements to• Mortgage papers establish an accurate cost • Title insurance policy basis if you ever sell your• Home improvement receipts home. (including landscaping expenses)• Property tax receipts• Termite inspection and policy• Copy of lease or rental agreement

• Details of policy • Change insurance limits or • Insurance policies should be kept policy annually to reflect in a safety deposit box away from changes in personal property the house. holdings and/or changes in• Personal property inventory. replacement costs of all struc- • Pictures of highly valued items. tures. Update personal prop- erty inventory once a year, add new items, revalue old items, eliminate items sold or lost; take more pictures, if necessary • Shop for rates. Get a minimum of three quotes before each renewal date.

GENERAL

BUDGETING

HOUSING

PROPERTY INSURANCE

12

TAXES

GUARANTEES & WARRANTIES

EMPLOYMENT INFORMATION

PERSONAL RESUME

CREDIT RECORDS

HEADING CONTENTS OPERATIONAL CHECKLIST

• Purchase receipts, interest • File all receipts that are payment records, charitable gift required to substantiate receipts, medical records, etc. deductions. After your annual • Tax forms, schedules, and tax is filed, place all receipts other data for past 10 years. and other substantiating • Quarterly estimated tax forms. records in an envelope and file W-2 forms, 1099 forms, etc. here or in an extra storage box.• All cancelled checks for last seven years.

• All warranties relating to • Add items to file after purchased appliances, tires, carpets, etc. Remove all that have expired• Receipts. once per year.• Repair instructions.

• Employment contract, if any. • Update file, as necessary• Employee handbook.• Fringe benefits information.• Annual Statements

• Details of previous education, • When you switch jobs, put years, major, degree(s), major information from employment professors and advisors with in here. addresses.• Employment record, job titles, • Before you leave a school, dates, responsibilities, update file with needed supervisor’s names & addresses. addresses• Residence record, dates and addresses.

• Papers showing resolution of • Update file as necessary. prior debts. Credit card numbers, names and addresses.

13

KEY PERSONAL PAPERS

Name Location Certificates: birth adoption baptismal marriageWillBrokerage StatementsIncome Tax ReturnsGift Tax ReturnsMilitary Service RecordsSocial Security Number and CardsEmployment RecordsEducational Records (diplomas, transcripts)Medical and Health Records (medication, vaccinations)Cemetery Site DeedDivorce Decree or Separation AgreementPassportCitizenship PapersOrganizations: professional, religious, fraternal, union, other

Others:

STOCKS, BONDS, MUTUAL FUNDS AND OTHER INVESTMENTS

Broker Address Telephone

Owner Date Number Issuer (Indicate whether Description of of Purchase Location registered or bearer) Purchase Shares Price

Stocks

Bonds

Other

14

FINANCIAL SELF-EXAMINATION

Your net worth is what

you own (assets)

minus what you owe

(liabilities).

Total Assets —Total Liabilities =NET WORTH

#2You can’t grow financially unless your income exceeds your expenses.

Net Worth Determining your net worth and recalculating it each year is the best indicator of your financial progress. Adding up your net worth is the first step in creating a solid finan-cial plan. You must know what all your resources are before you can manage them properly. Balance SheetThe balance sheet is a clear picture of your assets and liabilities, which enables you to analyze your finan-cial position. It shows you what is owned, what is owed, and your net worth on a specific date (usually

the end of the calendar year). Your balance sheet will de-

termine if your net worth (Assets - Liabilities) is positive or negative. To

figure your balance sheet, you’ll need the following:

• Calculator• Bank statements

• Statements from money market funds, mutual funds, broker- ages and life insurance• Most recent federal tax return• Value of stocks, bonds, and Deferred Compensation• Estimated value of your home

AssetsAfter you gather all your docu-ments and information, begin look-

ing at your assets. Using the Person-al Balance Sheet, total all your cash and cash equivalents. Then tally the worth of your personal property.

InvestmentsLiquid investments can be quickly converted to cash without paying a high penalty or having to prove hardship. Otherwise, list them un-der non-liquid investments. Non-liquid investments either take time to convert to cash or come with penalties for doing so. Examples of non-liquid investments are: Individual Retirement Accounts (IRA’s) for people under 59 1/2, Deferred Compensation Plans while actively employed, and investment real estate (land, income property, and limited partnerships). Add up all of your assets and insert this total amount on the Per-sonal Balance Sheet.

Liabilities and LoansThe other half of your Personal Balance Sheet contains your liabili-ties. Include your mortgage, current unpaid bills, and balances due on loans. List liabilities by the order in which payments are due, or from shorter to longer-term debts. It is important to know the amount of your consumer debt. If you don’t know a loan’s bal-ance, contact the lender. Add up all of your liabilities and insert this to-tal amount on the Personal Balance Sheet.

15

RULE OF THUMB FOR NET WORTH

For 35 years and older: Multiply 1/10 of your age by your total taxable income. That figure should be your current net worth. If you fall short, you will need to start saving the difference.

EXAMPLE: 40 years of age with $50,000 Total Income

1/10 of 40 = 4

4 x $50,000 = $200,000

Once you have totaled your assets and liabilities, you are ready for the final calculation–your net worth. Subtract your liabilities from your assets. If you are on the plus side, great. Read on to learn more about your personal finances. If you are on the minus side (more liabilities than assets), the next part of this unit will show you how you may be able to turn your personal finances around.

Analyzing Your Balance Sheet For planning purposes, it would be helpful to see how the amount of your net worth is reduced after subtracting your home equity, contributions to SERS, and other personal properties to determine the amount of actual capital at work.

�Are your investments diversified, or are they concentrated in one type of asset or in a single asset? Diversifying your investment port-folio combines security with some risk in order to achieve maximum returns. Even in retirement, you should be able to withstand some risk to keep your return earning above the rate of inflation.

Are you adequately insured? The primary purpose of life insur-ance is to protect assets, including your ability to earn money. Liabil-ity insurance is needed to protect against the personal risks of long-term medical costs, loss of income due to disability, and property and liability losses.

The more you work with your personal balance sheet, the more aware you become of your financial strengths and weaknesses.

16

PERSONAL BALANCE SHEETASSETS LIABILITIES

Cash on Hand ________ Unpaid Bills ________

Bank Accounts ________ Insurance Premiums ________

Money Markets ________ Utilities ________

Loans to Others ________ Alimony, Child support ________

Savings ________ Other ________ PERSONAL PROPERTY LOANS

House ________ Home Improvement ________

Art, Antiques ________ Cars ________

Jewelry, Collectables ________ Education ________

Automobiles ________ Other Installment Loans ________

Boats ________ Loan against Life Insurance ________

Other ________ Other ________

LIQUID INVESTMENT MORTGAGES

Stocks, Bonds, Securities _________ Home ________

Certificate of Deposit ________ Vacation Property ________

Cash Value of Insurance & Annuities ________ Other ________

Other ________

NON-LIQUID INVESTMENTS

SERS Contributions ________

IRAs ________

Deferred Compensation ________

Real Estate ________

Other ________

Total Assets _______ Total Liabilities ________

Total Assets - Total Liabilities = Net Worth

17

CASH FLOW

Your net worth is your personal financial history up to a point in your life while cash flow deter-mines if your expenses (outflow) exceeds your income (inflow) or vice-versa. One way to get a picture of your cash flow is to flip through your check register. You may find that you’re running on empty just before each paycheck. Or you may discover that the balance is build-ing in your account. Either way, find out where your money goes. A check register can help with big expenditures, but what about the “banking” that you do at the grocery store. You buy $3.15 worth of grocer-ies, but write a check for $50 over the amount for “pocket money.” To enter $53.15 as grocery is not ac-curate. How did you actually spend the money? A more accurate accounting of your cash flow is to keep a journal or diary of your expenses for at least a month. DO NOT include a miscellaneous line item since this is the black hole of financing. Instead, identify all of your expen-ditures. If more than 30% of your after-tax income has trickled away in cash purchases, your spending records are probably insufficient.

Inflow Your most recent year’s tax return is the best source to determine income.

Outflow Outflows are divided into two parts: taxes and living expenses.

TaxesEnter the amount of income taxes for the year. If you received a refund, include the actual amount paid (taxes withheld minus refund). Enter the amount of property tax paid. Enter your Social Security contributions (W-2 Form) and fig-ure your after-tax income.

Living ExpensesCheckbook registers and charge card statements are a great source for tracing some types of expenses. To get your total annual living expenses, add the amounts in each category and multiply the total by 12. Put this amount on the Income Statement for total annual living expenses. For total outflows, add your total taxes to annual living expenses and subtract this amount from your total income to deter-mine whether a surplus exists.

Cash Flow Analysis Your cash flow shows you if your expenses exceed your income–or vice versa. If expenses exceed income, you are losing ground financially. You need to look at the individual areas in the Expenses section to determine where the spending problem is. If your expenses and income balance out, then the question is: Are sufficient funds being set aside for savings and investment? Limiting excess spending will help you strengthen your savings and investments because you will have more money to set aside in-stead of paying off debts.

#3TO DETERMINE CASH FLOW, YOU WILL NEED:

• Calculator • Your most recent tax return • W-2 tax withholding forms • A month’s worth of pay-stubs • Income received for the last six months • Your checkbook registers and/or bank statements • Your utility bills for the last six months • Your charge card state-ments for the last six months• Your most recent quar-terly, semi-annual or annu-al statement of investment income from SERS, broker-age firms, mutual funds, Deferred Compensation, and other sources • Estimated out-of-pocket expenses

18

CASH FLOWINFLOW Income Last YearWages and salaries/overtime $ ____________Dividends and interest ____________Child support/alimony ____________Annuities, pensions, Social Security ____________Rents, royalties, fees ____________Other __________________ ____________ Total Income $ ____________

OUTFLOWTaxes: Federal ____________ State ____________ Local ____________ Property ____________ Other __________________ ____________

Total Taxes ____________

Total Income ____________

— Total Taxes ____________

Total Income After Taxes ____________

LIVING EXPENSES Rent or mortgage * Food Financial legal services * Clothing Car payments * Furniture durable goods Household maintenance * Recreation, entertainment, Gasoline vacations Medications * Meals out Homeowners or tenants * Utilities insurance premiums * Interest on consumer Car repairs creditAuto insurance premiums * Life and disabilityHealth insurance premiums insuranceTuition/day care * Grooming Other * Bank service fees * Cable T.V. * Flexible Expenses * Doctor bills

Total Annual Living Expenses $______________

Total Income - Total Taxes - Total Living Expenses

19

THE BUDGET THAT’S RIGHT FOR YOU

After reviewing your cash flow, the next step in your financial plan is to establish a budget. Having a budget makes it easier to achieve financial security. After itemizing your living expenses, review each line item and identify any areas where you could cut costs. Everyone has extra money waiting to be discovered. When evaluating your expenses, ask yourself the following questions: • Is this product/services essen-tial? • Could I get by with a less expen-sive version? • Am I getting the best price? • Could I refinance the (home, boat, car, van) and take advantage of the extra cash to reduce credit card debt? • Can I learn simple home mainte-nance to reduce costs? • Do I still need the same insur-ance program or coverage rate?

It is better to cut a little from each line item than to drastically reduce one or two. Try to follow your plan. Most budgets are not 100% success-ful at first. Your budget will need attention, review and readjustment until you can make it work for you. Unex-pected expenses arise all the time. This is when your budget becomes a money management tool. Learn to live within your means!

BUDGET TIPS

Utilities: Check with your utility company. Many offer information and services to save energy and money.

Gasoline: Warm up your car engine. A cold engine uses about 10% more gas. Keep your tires inflated prop-erly. You can increase your perfor-mance by at least 3% and reduce your gas costs by as much.

Car Insurance: If your car is more than five years old, check its value. Once the value falls to around $2,000, drop the collision insurance, because the settlement for a totaled car is not enough to justify the cost.

Doctors: Consider an HMO. Com-pare insurance plans to determine the best one for you.

Medication: Request generic.

Examine your spending habits, paying special attention to flex-ible living expenses:

Food: Do you take advantage of cou-pons, stock up on sales, buy bulk?

Clothing: Do you buy at the end of the season, on-sale, consignment shops (children and adults)?

Furniture: Do you shop around in second hand shops, garage sales, comparison shop?

#4

MAKING YOUR BUDGET WORK

Communicate: Discuss needs and wants with all family members involved to ensure success.

Cooperate: Be prepared to compromise.

Control: Do not allow unnecessary spending.

You must be able to control your spending or it will control you. The choice is yours!

20

Recreation, Entertainment, Vaca-tion: Do you take advantage of free-bies offered in your community? Watch for airline sales, travel off-season, and save for your vacation instead of charging it. Rent movies instead of going to the multiplex.

Meals Out: Do you take advantage of coupon specials?

Utilities: Do you keep your home temperature comfortable, but con-serve on heat or air conditioning, lights, water? Keeping your house 20 cooler (or warmer in the summer) can make a difference. Is your home as energy efficient as it can be?

Insurance: Do you review your poli-cies on a regular basis to determine if your needs have changed? Have you adjusted your various insur-ances to reflect these changes?

Interest: Do you take time to in-vestigate the reduced interest rate

cards and how they can reduce your payments?

Bank Fees: Do you review your statements on a regular basis to determine if any of the fees can be reduced by switching banks or ser-vices? Have you switched to a bank that does not have a yearly fee on your credit card? Have you elimi-nated the use of ATM machines?

Cable TV: Do you really watch all of those extra channels enough to merit the additional charges?

Are your fixed living expenses the best you can do? Have you reviewed your present mortgage? Are there lower rates and other programs that can be of benefit to you financially? Financing and refinancing may be an advantage. What seem like small savings can add up to a sub-stantial amount in the long-term for establishing financial stability.

View your spending in terms of needs–

not wants!

21

Emergency FundFinancial planners agree that one of the biggest reasons that budgets fail is the lack of an adequate emer-gency fund. A sufficient amount in an emergency fund is usually three-month’s salary. Yet 75% of working people have less than $1,000 in a savings account! The emergency fund is used to deal with unplanned expenses that can destroy your budget attempts. Deposit the money where it will earn a large enough yield to keep pace with inflation. A good way to start an emergen-cy fund is to enroll in an automatic savings plan. Start with as much as you can afford. Also, consider enrolling in money market funds which tend to pay higher interest rates than conventional savings accounts.

Consumer Debt Reduction Planners recommend the reduction and eventual elimination of con-sumer debts such as credit cards, auto loans, and similar installment loans. Gather up your credit cards, cut up all but one or two major cards and throw them away. If you do not have the extra cards you will not be able to increase your debt. Review your budget to see how much you can allocate to reduce your credit card debt. Double the amount of minimum payment and

start your balance reduction. When the first credit card is paid off, take the amount you were paying on the first account and add it to the second card’s payment and increase your payments to the second card. Keep doing this until you have eliminated your excess credit card debt. Although you will always need one or two major cards for travel and emergencies.

In selecting a major card, look for the following: • A bank with no annual fee on its credit card.• A card that will offer cash back at the end of the year.• The lowest interest rate.• Extra incentives; such as credits for frequent flyer miles or long- distance calls.• Long grace periods.

Take advantage of credit cards of-fering a reduced inter-est rate. Although the reduced interest cards usu-ally are limited to a certain time frame, it is better to pay 5.9% for six months rather than 18-21%. Read the options avail-able with the reduced percent card offer. In most cases, you can rollover gas, department store, and other major cards into the reduced rate card. For a list of low-rate credit card issuers, go to the CardTrak website at www.cardweb.com/cardtrak.

MANAGING DEBT

It does not make financial sense to pay 18-21% in credit card charges and save money in a 3-5% account.

22

WARNING SIGNS OF A CREDIT CRISIS

• You are at or near the limit on your credit card(s).

• You charge more each month than you make in payments.

• You are consistently late with bill payments.

• You are using savings for daily expenses.

• You are making required monthly payments to your creditors totaling 20% or more of your take-home pay.

• You have recently been denied credit.

• You do not know how much debt you owe.

• You are using cash advances from credit card issuers to pay other creditors.

• You pay only the minimum amount due on your credit cards.

• You have defaulted on a payment.

• You have paid a bill with a post-dated check.

• You have had a check returned for insufficient funds.

• You have seriously considered taking out a consolidation loan to pay off your credit cards.

• You have received a telephone call or letter about your delinquent accounts.

• You are facing creditor lawsuits, repossessions and/or garnishment of wages.

The key to any debt is paying more than the set monthly payment.

Not only will you pay the debt off faster, but you’ll save a significant amount of money that would have

gone towards interest.

You can “earn” more by paying off a loan than you can by saving and investing. Paying off a credit card that has a 17% interest rate is equivalent to earning 17% on an investment–an extremely attractive rate of return. (Actually, it’s even better than that; it’s the equivalent of earning 17% after taxes.

• Suppose you save $2,000 and put it in a savings account earning 3% interest. You will earn $60 per year on your savings.

• Suppose, on the other hand, you put aside $2,000 and paid off the $2,000 balance on your credit cards. You would save–in effect earn–17% on the transaction, or $340. That’s $280 more than the $60 you would earn on $2,000 in a 3% savings account.

23

“Charlie” You

1. How many years will you live in retirement? (85 minus your age at retirement) 20

2. How much monthly income would you need NOW to live comfortably in retirement? $1,500

3. How much monthly income would you need in 10 years to live comfortably? (Multiply line 2 by 0.82) $1,722

4. How much monthly income would you need in 20 years to live comfortably? (Multiply line 2 by 1.33) $1,995

INFLATION

72 ÷ Current Inflation Rate = Number of Years Until Prices Double The rule of 72 tells you how fast your money is losing its value. Divide 72 by the current inflation rate to find the number of years before prices double. Inflation also erodes what money is worth. If the inflation rate stays at a modest 3%, the $100 you have today will only be worth $50 in 24 years. Since many people live at least 20 years after retiring, inflation can be a matter of concern.

Inflation Projection Worksheet

Years in Retirement 5 10 15 20 25 30

2.5% Inflation Rate 0.64 0.82 1.04 1.33 1.70 2.16

$31.3

$73.7

$98.8

$153.4

$244.7Saving tax-deferred gives you the double advantage of reducing your taxable income while investing for your retirement. In this example, if you invested tax-deferred for 30 years at an 8% rate of return, you would have $91,300 more dollars than if you had invested with after-tax money.

$27.2

$2,000 Invested Yearly With an 8%

Rate of Return

Taxable

Non-Taxable

WHY SAVE TAX-DEFERRED?

24

FINDING A GOOD FINANCIAL ADVISOR

So how do you find a financial advisor? The best place to start is asking co-workers for referrals. A financial planner who does a good

job for your co-workers, will probably be a good fit for you, too. Once you have three or four names, arrange a

short face-to-face interview with each advisor. Find out if

they work with people similar to you financially. Ask them how they are paid, and how much they charge. Re-quest three client references that you can speak with. Other questions that should be answered:

• What is their professional back-ground, education, and experience?

• What is their area of specializa-tion? Does it match your goals and risk tolerance?

• How many years have they been in business?

Financial planners are usually paid three different ways:

1. Fee-Only Planners charge an hourly rate (typically $100 to $250) to assess your needs and put to-gether a comprehensive financial plan.

2. Commission-Only Planners get commissions on the mutual funds, stocks or insurance they sell you, instead of collecting a fee. There can be a conflict of interest

in that certain products may pay them more than others, but this one-stop shopping approach is a convenient way of doing business.

3. Fee-Plus-Commission Planners charge a fee for their services and sell products which they receive a commission on.

All three types of planners have their pluses and minuses. Your goal should be to find the right planner for your needs. There are four financial plan-ning groups recognized for their qualifications and membership requirements that you can contact for referrals:

The American Institute of Certi-fied Public Accountants offers referrals to CPAs with specialized experience in financial planning. 888-777-7077 or www.aicpa.org

The Institute of Certified Finan-cial Planners offers referrals to professionals who have achieved the Certified Financial Planner (CFP) designation. 800-282-PLAN or www.icfp.org

The International Association for Financial Planning has an exten-sive program for continuing educa-tion 888-806-PLA, or www.iafp.org

The National Association of Per-sonal Financial Advisors offers referrals to fee-only planners 800-366-2732, or www.napfa.org

The Investment Advisors Act of 1940-Rule 204-3, other-wise known as the “Brochure Rule,” states that all potential clients must be given a bro-chure listing the services and background of the investment advisor before any contractual agreement can be signed. If you would like a copy of this brochure, contact us at 217-785-6979.

SERS only employs certified financial planners

for all of its workshops.

25

BANKING TIPS

Though most banks offer similar products and services, there can be important differences. For example, some banks don’t pay interest on savings accounts of less than a cer-tain amount. Others impose large service charges or monthly fees.

The following tips should help you find the right bank and avoid fees to your account.

Credit Unions can often save you money. They tend to charge lower rates on loans and are easy to get for members in good standing. Their fees are usually lower, and the savings account rates are higher than regular banks because they are non-profit.

Minimum Daily Balance requires you to maintain the minimum bal-ance every single day in order to get free checking. If your balance drops below the minimum–for even one day–you are charged a fee. Look for a bank that uses the average daily balance method. With this method, the bank adds up your daily balances with the total num-ber of days in the billing cycle to get an average amount. If your bank balance require-ment is $1,000 and your account dips below that $1,000 minimum a couple of times in a billing cycle, you won’t be penalized as long as your average balance is at least $1,000.

Direct Deposit may be a way to save money. Some banks will waive minimum balance requirements and checking fees if you have direct deposit.

Sign up for overdraft protection. The fee you pay on an overdrawn check is often high. With overdraft protection, you can be sure that every check you write is paid. If you do not abuse it, the service will cost you much less than a bounced check penalty.

Review your bank statement monthly. As banking services expand, monthly statements have become important records. Under-stand any service fees your bank charges. Discuss optional programs with them.

Avoid late loan fees by making pay-ments on-time. Like check bounc-ing fees, late fees are usually much higher than the expense the bank incurs.

Avoid ATM Machines. The bank-ing industry touted ATM machines as a convenience. But consumers have paid over $2 BILLION in fees for this convenience. Pay particular attention to ATM charges if you use cash machines frequently. Some banks charge a fee for every use, and some whenever you use a ma-chine at a different bank.

26

Children traditionally enter college at age 18, and obtain an undergraduate degree in 4 – 5 years. In this exercise, college costs include tu-ition, fees, and room & board. To estimate total college expenses, find the year your child will enter college and add the cost of that year with the cost for the next three years. For example, if your child will enter college in the year 2016, add the cost for 2016, 2017, 2018 and 2019.

Designing Your PlanIf you feel overwhelmed by the total cost you just estimated, remember that the earlier you begin saving toward your child’s education, the longer your money can work for you. If you save about $24 a week for 18 years with an 8% return, you will accumulate about $50,000. While your child grows, your depos-its of about $22,500 would “grow” to $27,500 with interest. Using the table below, you can approximate the amount you must save regu-larly to pay for expected college expenses.

PLANNING FOR COLLEGE

Tuition & Fees per YearUsing inflation rate of 2.5%

Year Entering Four Year Four Year College Public Private

2014 9,903 40,443

2015 10,151 41,454

2016 10,404 42,490

2017 10,664 43,553

2018 10,931 44,642

2019 11,204 45,758

2020 11,484 46,901

2021 11,772 48,074

2022 12,066 49,276

2023 12,367 50,508

2024 12,677 51,770

Total Expected Cost

Cost for four years of college

Cost for fifth year (optional)

Total Estimated Cost

Multiply by Factor (in table)

Annual savings required÷ by 12 for monthly savings

OR÷ by 52 for weekly savings

Years Until Months Weeks Entering College Factor to Save to Save 2 .48 24 104 3 .31 36 156 4 .22 48 208 5 .17 60 260 6 .14 72 312 7 .11 84 364 8 .09 96 416 9 .08 108 468 10 .07 120 520 11 .06 132 572 12 .053 144 624 13 .046 156 676 14 .041 168 728 15 .037 180 780 16 .033 192 832 17 .030 204 884

1.

2.

3.

4.

5.

27

GLOSSARY OF COMMONLY USED FINANCIAL TERMS

Aggressive: This is a term used to describe an investment which, relatively speaking, carries a high degree of risk.

Balanced Fund: A mutual fund which has an investment policy of “balancing” its portfolio, gener-ally by including a combination of bonds, preferred stocks, and com-mon stocks.

Bond: An IOU of a corporation. It is evidence of a debt on which the issuing company promises to pay the bondholders a specified rate of interest, and to repay the loan on a specified maturity date.

“Blue Chip” Stocks: High qual-ity stocks of major, well-managed companies with long-term records of dividend payments.

Capital Gains: Profits earned by a fund from the sale of securities within its portfolio. These gains are reinvested to buy more securities for the fund, or distributed to the fund’s shareholders. For an inves-tor in the deferred compensation plan, capital gain distributions are reinvested to purchase more fund shares for his or her account and are not taxed until withdrawn.

Capital Growth: An increase in the market value of a security.

Certificates of Deposits (CD): A negotiable certificate of deposit in a commercial bank earning specified rates of interest over given periods.

Commercial Paper: Short-term promissory notes of large corpora-tions.

Common Stock: Securities that represent an ownership interest in a corporation. Also referred to as “equities”.

Common Stock Fund: A mu-tual fund whose portfolio consists primarily of common stocks. The emphasis of such funds is generally on growth.

Convertible: A term used to de-scribe a bond, debenture, or pre-ferred stock which may be ex-changed by the owner for common stock or another security (usually of the same company) in accor-dance with the terms of the issue.

Current Income: Dividend, inter-est, or yield which accrues and is paid periodically in a mutual fund. Usually, market fund seeks current income as an investment objective.

Diversification: An investment pol-icy of spreading investments among a number of different securities to reduce risk.

28

Dividend: A payment of income on a share of common or preferred stock. In the deferred compensa-tion plan, these earnings are au-tomatically reinvested and taxes deferred until withdrawal.

Dollar Cost Averaging: An invest-ment strategy that involves invest-ing equal amounts of money in a security at regular intervals regard-less of what is happening in the stock market. This strategy generally reduces the average cost per share to the investor since more shares are acquired in periods of lower prices and fewer shares in periods of higher prices.

Dow Jones Industrial Average: A popular indicator of stock price levels and changes. The DJIA con-sists of thirty actively traded “blue chip” stocks primarily industrials that are listed on the New York Stock Exchange.

Equity Fund: A mutual fund that invests primarily in stocks.

Equity: Ownership interest of com-mon and preferred stockholders in a company. Used at times as a synonym for “stock”.

Ex-Dividend Date: The date on which a mutual fund begins trad-ing without the dividend or capital gain distribution. This is the date on which the NAV decreases by the amount of the distribution.

Fixed Income Security: A debt security with a fixed percentage return.

Government Obligation: Debt security issued by the US Treasury or by an agency or instrumentality of the US government and generally guaranteed as to timely payment of principal and interest by the issuer.

Growth Stock: A stock that has shown better-than-average growth in earnings and is expected to continue to show high levels of profit growth through discoveries of additional resources, develop-ment of new products, or expand-ing markets.

Growth Fund: A mutual fund with growth of capital as a primary objective, usually to be obtained principally through investments in common stocks with growth potential.

Growth and Income Fund: A mutual fund with the objective of providing both income and growth through investments in common stocks and bonds. A balanced fund is an example of a growth and in-come fund.

Income Fund: A mutual fund whose portfolio consists primarily of bonds or high dividend paying stocks. The emphasis is normally on income rather than growth.

Income Stocks: Stocks of compa-nies that pay out a relatively large portion of their earnings in divi-dends.

Investment Objective: A goal pur-sued for an investment or an invest-ment program.

29

Load: A sales charge.

Management Fee: The amount paid by a mutual fund to its invest-ment advisor for portfolio manage-ment services. The amount of the management fee for a fund can be found in the fund’s prospectus.

Money Market Fund: A mutual fund which is designed to main-tain a stable share price by invest-ing in short-term money market instruments which include bank certificates of deposits, bankers’ acceptances, commercial paper, and government securities.

Mutual Fund: A registered invest-ment company which combines the money of many people whose investment goals are similar and invests this money in a wide variety of securities.

Net Asset Value (NAV): The value of one mutual fund share, exclud-ing any sales charges or redemp-tion fees. The NAV is calculated daily by subtracting liabilities from the value of a fund’s total assets and dividing by the number of fund shares outstanding.

No-Load Fund: A mutual fund sold without a sales charge.

Preferred Stock: A class of stock whose owners have a claim on the company’s earnings before com-mon stock. Preferred stock is also usually entitled to dividends at a specified rate.

Portfolio: The securities owned by a mutual fund.

Prospectus: The printed summary of a registration statement filed with the Securities and Exchange Commission in order to publicly offer securities (such as mutual fund shares). The prospectus is the official selling document outlining the security’s characteristics. Investors agree to the terms of the prospectus at the time of purchase.

Standard & Poor’s 500 Composite Stock Price Index: An average of 500 stock prices: 400 industrials, 40 financial, 40 utili-ties, and 20 transportation stocks. Each stock is weighted according to its capitalization. This is the most widely used general index of stock market activity.

Total Return: The change in a secu-rities value for a specific period. It includes the effect of the reinvest-ment of any dividend, sales charge, and capital gain distributions dur-ing that period.

Turnover Ratio: The extent to which the securities in an invest-ment company’s portfolio are bought and sold during the course of the year.

Volatility: The relative rate at which a security or fund share tends to move up or down in price.

30

FINANCIAL PLANNING FOR RETIREMENT

YOUR BUDGET• Do you keep track of your monthly income and expenses? Y N• Have you developed a budget plan for monthly income and ex-penses? Y N• Are you saving something each month? Y N• Have you worked out goals for your savings program? Y N• Do you have an emergency fund? Y N• Are you also saving monthly for your retirement? Y N• Do you have a program of debt reduction? Y N• Will you be out of debt before retirement? Y N• Have you worked out a budget of probable income and expenses after you retire? Y N• Do you know what your month-ly benefits will be from: Social Security? SERS pension? Invest-ments? Y N• Does your retirement budget balance? If not, have you worked out a plan to overcome the deficit? Y N

YOUR ESTATE• Have you made plans for the ownership and transfer of prop-erty? Y N• Have you had a lawyer draw up a will for you to provide for dispo-sition of your property upon your death? Y N• Have you worked out a retire-ment budget for your survivor(s)? Y N• Will your survivors need life insurance protection? Y N• Have you included life insurance premiums in your savings pro-gram? Y N• Are you familiar with the type, amount, and benefits of your insur-ance policies? Y N

• Have you selected the method of payment best suited to your survi-vors’ needs? Y N• Do you know a good life insur-ance agent who can advise you on insurance matters? Y N• Does your chief dependent know the general facts about your insur-ance, property and investments, what she or he can expect in in-come, and where to find your will? Y N

YOUR INVESTMENT PROGRAM• Do you have an investment pro-gram for your savings? Y N• Do you have a source of advice for your investment program? Y N• Have you tried to learn some-thing about investment principles and types of investments? Y N• Do you understand the differ-ence or relationship between: In-vestment and speculation? Safety of principal and amount of income return? Stable-value securities and common stocks? Inflation, dollar income, and real income? Y N• Has your investment plan been worked out to meet your own needs in relation to the amount of time, thought, and knowledge you are willing to give investment mat-ters? Y N• Is your investment program well-diversified as to types and issues of securities within the limits of your own personal investment program? Y N • Have you considered invest-ments other than securities (such as annuities or income producing property)? Y N• Do you have a regular savings program in a thrift investment (credit union, savings account, U.S. Savings Bonds, etc.)? Y N

$Do you have a financial plan? In order to achieve your financial goals, you should have a solid strategy to meet them. Planning is one sure way to achieve finan-cial security.

Answer the following questions, and find out if you’re headed down the road to prosperity.

The more items you are able to check ‘Yes’, the better your chanc-es for financial security in retire-ment. If you marked more than half of the items ‘No’, you need to discuss your financial future with an advisor, and see what can be done to strengthen your financial position. As you improve your plan, rescore yourself from time to time. The closer you get to having 25-30 Yes answers, the more secure your financial future is likely to be.

31

DEFERRED COMPENSATION

32

33

WHY YOU SHOULD INVEST

When it comes to planning for the future, you may not know where to start. For that matter, you may not know why to start. After all, won’t your pension and Social Security benefits take care of you in retire-ment? If you’re under 30, you may think it’s too soon to start put-ting money away for retirement. If you’re over 55, you may think it’s too late to save for a retirement that’s right around the corner.

Why Save?There are probably a million other things that seem more important to you right now than planning for retirement. But the fact is, when you retire:• You’ll have to provide for your-self and possibly others• Your retirement could last 20 to 30 years• Inflation will keep pushing costs up• Medical bills could climb higher• Social Security probably won’t be enough to provide all of the comforts you’d like.

Get Started TodayIt doesn’t matter how old you are or what your financial position is. What does matter is taking the first step. The State of Illinois Deferred Compensation Plan makes it easy to start building a foundation for your future. While enrollment is

completely voluntary, the Plan offers you the chance to:

• Reduce your current income taxes.• Watch your earnings grow tax-free.• Save through convenient payroll deductions.

The Plan also offers you a wide variety of investment options and the flexibility to make changes. Before you enroll, you should know the Plan is meant to be a long-term savings program for your financial future. The Internal Revenue Code restricts withdrawals from the Plan except in the following cases:• Termination of service for 30 days.• Death (Your beneficiary would receive your benefits).• Unforeseeable financial hard-ship.

If you aren’t already enrolled in the Plan, this section gives you all of the important details you need to know. Enrolling is easy–just complete the forms from Deferred Com-pensation and send them to your agency liaison or mail them directly to the Deferred Compensation of-fice. Take advantage of this opportu-nity to build your financial future today!

As you can see in the chart, personal savings and in-vestments provide a sub-stantial portion of retirees’ incomes today. You can also see that many retirees work to supplement their incomes.

34

It’s Easy and ConvenientContribute whatever amount is comfortable for you. Your contribu-tions are automatically deducted from your paycheck each pay period. This way you don’t have to remember to budget for it. You never see the money, so you don’t spend it.

The Powerful Effects of Compound InterestHaving your money work for you is one of the sweetest rewards of saving and investing. Compound interest is based on your original investment plus each year’s interest. So each year, compounding makes the amount that is earning interest grow larger. This can have a powerful im-pact on the value of your savings over time. The longer you stay in-vested, the more opportunity com-pounding has to increase the value of your account. Compounding

makes the money you save today more powerful than the money you save tomorrow.

Consider this ExampleReferring to the chart below, Cathy starts contributing $100 per month at age 30 and doesn’t stop until she’s 60. John also starts saving $100 per month when he’s age 30, but stops after just 10 years. And Dan doesn’t start contributing until he’s age 40. You can see from the chart be-low that Cathy contributed the most and was the most successful. And even though John contributed less to his account than Dan, he started earlier so his money had more time to compound. The point of the chart is it doesn’t matter whether you’re 25 or 55, with a lot to save or just a little. What really matters is to get started contributing to the Plan as soon as you can!

THE ADVANTAGE OF TAX-DEFERRED COMPOUNDING

Cathy$100/mo.

John$100/mo.

Dan$100/mo.

AT AGE... 30 40 60

YEARS OF SAVING ACCOUNT TOTAL

30 years

10 years

no contributions

no contributions

20 years

$150,030

$90,735

$59,295

35

This chart is for illustrative purposes only and should not be considered representa-tive of an investment in one of the Plan’s funds.

GENERAL RULES FOR RETIREMENT INVESTING

Market RiskThe chance that you could lose a portion of your investment is known as market risk. The best way to reduce it is to include invest-ments with different levels of risk and return.

Inflation RiskIf the cost of living grows faster than your investments, you’ll suffer from inflation risk. This is most common if all of your invest-ments are in low risk/low potential returns. The best way to protect against it is to choose some invest-ments that usually outpace infla-tion, such as stocks.

DiversifyDiversity means not putting all of your investment eggs in one basket. By investing in a mix of stocks, bonds and short-term investments, you increase the chance that some of your holdings will do well even if others are not. This reduces the potential impact of a single, poorly performing investment on your overall nest egg.

An Investment StrategyOnce you develop an investment strategy that’s right for you, don’t make frequent adjustments in an at-tempt to be in the right investments at the right times. This is called market timing, and it just doesn’t work. Here’s why: Ruth invests $10,000 in a mix of stocks and stays invested for 30 years, regardless of the market’s performance. Ron also invests $10,000 in the same stocks, but panics and moves his money out of the market when he thinks the stocks might go down. Because of this, he misses some of the best months for stock market performance. No one can predict the ups and downs of the markets, and those who try usually end up losing more often than they win. Successful investors build strategies that match their risk tolerance, and then stick with that strat-egy.

Pret

ax E

ndin

g B

alan

ce

$600,000

$500,000

$400,000

$300,000

$200,000

$100,000

0

Ruth$475,175

Ron$170,306

Ruth took the long-term approach. She had many years until she planned to retire and use her savings, so she put her money into stocks–and left it alone for 30 years.

Ron used a market- timing strategy. Since he kept moving his money into and out of the stock market, he ended up missing out on the 10 best-performing months for stocks during that 30-year period.

36

1. Which one of these best describes your situation?A. Age 20 to 35, just beginning career and family, and saving for major purchases.

B. Age 30 to 50, saving for children’s college education, paying for home.

C. Age 40 and over, with children grown and on their own, saving as much as possible for retirement.

2. When it comes to investing for retirement, would you consider yourself a knowledgeable investor?A. Yes

B. Somewhat

C. No

3. You would feel best if you made an investment that:A. Doubled your money in the first year, although it had an equal chance of a 50% loss.

B. Doubled your money in 10 years, with less chance of loss.

C. Grew slowly and steadily.

4. What’s your idea of a smart investment strategy?A. For the sake of getting the best long-term growth, you accept the risk of ups and downs. B. To earn returns that will keep you ahead of inflation, you live with moderate risk.

C. You save as much as you can, don’t take chances, and hope you’ll have enough.

YOUR TOTAL SCORE

How Much Risk are You Comfortable With?

The following quiz will help you determine your risk tolerance level. Total your score, then go to the next page to see the portfolio group best for you.

5 pts.

3 pts.

1 pts.

5 pts.

3 pts.

1 pts.

5 pts.

3 pts.

1 pts.

5 pts.

3 pts.

1 pts.

37

What Your Quiz Score Tells You

Your score from the previous page suggests your risk level. The amount of risk you’re willing to take with your investments depends on your time frame, your goals, your overall financial situation, and your at-titude toward risk. You may want to consult with a financial planner regarding your specific situation.

Score: 4-8 = LOW-RISK INVESTORYou are a conservative investor who wants maximum stability for your money and can accept low returns. But remember–not having enough money when you retire is a big risk too. It may be appropriate to con-sider higher-risk investments.

Score: 9-14 = MODERATE-RISK INVESTORYou are an investor who likes bal-ance between low-risk and higher-risk investments.

Score: 15-20 = HIGH-RISK INVESTORYou are an investor who is com-fortable taking substantial risk in exchange for potentially higher returns. Make sure you keep an eye on your time horizon and modify your investment strategy as your situation changes.

Page 39 lists the various investment options. You’ll notice each group has more than one fund. Base your fund choices on the descriptions in this section and on the fund’s prospectus, which provides more detailed information about each fund.

If you don’t have the time, desire or experience to manage your invest-ment choices, you should consider the T. Rowe Price Retirement Funds. Each Retirement Fund is invest-ed with a target retirement date and offers a professionally-managed, di-versified mix of mutual funds that automatically adjust as the target retirement nears. The Retirement Funds are not intended to be used in tandem with other Plan invest-ment choices.

38

STABLE RETURN FUNDThe Stable Return Funds objective is to provide a generally steady level of income and to preserve princi-pal. The fund is designed so that its principal value does not fluctuate. It invests in a diversified portfolio of investment contracts with a

group of high quality insurance companies, banks, and other

financial institutions.

BOND FUNDSThese are primarily investments in debt securities. These investments involve more risk than a money market/stable value investment, in part, because they invest in longer-term loans. However, bonds also have a higher potential return than

FOUR INVESTMENT GROUPS

The funds in the Plan are grouped in four categories, depending on the kind and amount of risk they carry, and their potential return.

a money market/stable value invest-ment.

STOCK FUNDSStock funds carry the highest risk, while offering the highest potential return. You should consider higher risk funds when you seek a strong return and can tolerate the market’s ups and downs and the potential loss of principal.

If you’re like most investors, you’ll want a mix of all these funds– each with its own goal–to meet your retirement target.

RETIREMENT FUNDSEach T. Rowe Price Retirement Fund is made up of other T. Rowe Price mutual funds. That means you get a mix of different investments. The performance and risk of each retirement fund corresponds to the performance and risks of mutual funds it invests in.

39

Stable Return FundVanguard Money Market Reserves

Stable Return Fund

Bond FundsVanguard Total Bond Index Fund –Institutional Shares

T. Rowe Price Bond Trust Fund

Stock FundsAriel Growth Fund

Columbia Acorn Fund

Fidelity Puritan Fund

Invesco International Growth Equity Trust

Janus Overseas Fund

Lord Abbett Large Cap Core Equity

LSV Value Equity Fund

Northern Small Cap Value Fund

Vanguard Institutional Index Fund

Wellington Diversified Growth Portfolio

William Blair International Small Cap Fund

Retirement Funds

T. Rowe Price Retirement 2015, 2020, 2025, 2030, 2035, 2040, 2045, 2050, 2055

Price Retirement Income Fund

Share PriceStability(less risk)

ReturnPotential(more risk)

YOUR INVESTMENT OPTIONS

This chart shows where each fund in the Plan fits on a scale from least risk and potential return, to greatest risk and potential return. The stock funds have the potential for the highest returns and the least share price stability. The stable return and bond funds are more stable and have a lower potential re-turn than the other funds. For more information about any of these funds, contact Deferred Compen-sation at 1-800-442-1300.

40

DEFERRED COMPENSATION CATCH-UP PROVISION

The Deferred Compensation Catch-Up Provision allows employees to defer more into their Deferred Compensation account than nor-mally allowed, due to an approach-ing retirement date. There are two ways to utilize the catch-up provision: age 50 catch-up and a special catch-up.

Age 50 Catch-UpThe age 50 catch-up allows em-ployees participating the Deferred Compensation to defer an addition-al amount over the IRS maximum annual deferral limit. The only eligibility requirement is the employee is age 50 or over during the tax year of this provi-sion. The additional deferral limit varies each year. The limit for later years will be adjusted to take into account increases in cost-of-living. You may defer the additional amount under this catch-up in the same tax year you retire. However, the age 50 catch-up cannot be used with the Special Catch-Up Provision.

Special Catch-UpThe Special Catch-Up Provision allows a participant to potentially double the normal yearly maximum

deferral amount three years prior to the year of being eligible for retire-ment. However, the IRS does not allow catch-up in the same tax year as the participant’s retirement. The amount an employee is allowed to “catch-up” is based on whether they contributed the maxi-mum each year dating back to 1979. This catch-up period is three consecutive tax years, not an over-all three-year period from start to finish.

Enrolling in Special Catch-UpTo enroll, complete the Special Catch-Up worksheet. Past salary, Deferred Compensation contribu-tions and other tax-deferred payroll deductions are needed. This information is then used to determine the amount of the special catch-up. Call the Deferred Compensation office for help com-pleting this worksheet. Return the worksheet to: Deferred Compensation Office801 S. 7th StreetP. O. Box 19208Springfield, IL 62794-9208

If you have questions about the Special Catch-Up Program, call Deferred Compensation at 800-442-1300 or 217-782-7006.

41

MAKE THE DECISION THAT’S BEST FOR YOU

Separation from state service is a big step which requires making many decisions. Whether you are retiring, moving to a job outside state government, or pursuing fam-ily or education goals, you need to decide how to handle the benefits you’re eligible to receive. Choosing how you want your Deferred Compensation account distributed is one of these deci-sions. Thanks to new tax laws, you will be allowed to set the distribu-tion date that best fits your plans, and also change your distribution if your needs change.

Things You Need To Consider:

• When you want your account distributed.• How you want it distributed. • Your tax consequences.

You have a variety of distribution options from which to choose: a single lump sum, installments, or a plan-to-plan rollover (if you’re employed by another government entity). In addition, you may begin distribution immediately, or delay it until a future date. You can also change or discontinue the distribu-tion method you have chosen. You may want to ask the advice of a financial planner or tax consul-tant before making your choice. To ensure that you get the dis-tribution choice you want, notify

the Deferred Compensation Office before your date of separation. Also remember to mail your form within the required time frame. If you have any questions, or would like additional information or assistance, call the Deferred Compensation Office at 1-800-442-1300, 217-782-7006, or TDD 217-785-3979. Who is Eligible to Take a Distribution?You are eligible for a distribution after you separate from state service and are off any other state payroll for 30 days. If you are hired as an inde-pendent contrac-tor providing personal ser-vices to the State within the 30-day period, you will not be considered termi-nated, and therefore ineligible for a distri-bution.

Your Distribution DecisionCurrent rules allow you more flexi-bility in selecting your distribution, since there is no longer the 60-day time limit after separation. You can make your distribu-tion decision at any time as long as you’re under age 70 1/2.

This section explains your distribution choices, to help you make an informed de-cision that is best for your personal situation. Distri-bution materials, including the appropriate forms, are available from Deferred Compensation.

42

You can start, change or stop your distribution decision because the Irrevocable Election is eliminat-ed. You may also change your distri-bution election once every calendar quarter.

Select How You Want Your Account DistributedYour distribution can begin imme-diately, or you may delay distribu-tion until age 70-1/2. Remember that there is no penalty for ‘early

withdrawal’ associated with distri-butions from this Plan.

• If the value of your account at separation is $5,000 or less, you may wait to make your distribution decision, take a lump-sum distribu-tion, or make the plan-to-plan roll-over as discussed on the next page.

• If the value of your account at separation is $5,000 or more, you can choose one of the available distribution methods listed below.

YOUR DISTRIBUTION OPTIONS AT A GLANCE

YOUR DISTRIBUTION CHOICES HOW IT WORKS

Total Lump Sum A complete one-time distribution of the total value of your account.

Partial Lump Sum A single payment that can be followed by installments, or you can wait to resume any other payment choices.

Installments The installment amounts may vary with each payment. Payments can be made monthly, quarterly, semi-annually, or annually. You can choose a definite number of years you want to receive payments, or a recalculation of your life expectancy can be made annually to allow payments beyond your life expect- ancy when you separate from state service.

Fixed Dollar Installments You decide the amount of each installment payment, which stays constant. Payments can be made monthly, quarterly, semi-annually, or annually.

Plan-to-Plan Rollovers You may move your retirement plan assets between retirement plans in the public, private, education, and nonprofit sectors as you move between employ- ment in those sectors. Monies may be moved between ( to and from) 401, 403b, and governmental 457 plans, as well as traditional IRAs.

43

ROLLOVERS: THINGS TO CONSIDER

Rollovers provide an opportu-nity for the nation’s workforce to consolidate their financial hold-ings into a single plan. This should simplify your retirement savings decisions, such as asset allocation and distribution elections, by hav-ing just one account. However, rollovers also place the burden on the participant to verify if the plan qualifies for a roll-over, the plan’s quality of invest-ments and its expense report. The participant needs to inves-tigate each option of distribution and review the Plan they intend to roll their money into. Beware of trading costs, restric-tions and determine all the costs and fees of initiating and maintain-ing a transfer. After all, you have worked hard to save for retirement and build up your account to its current balance.

There are several questions that any responsible investor should investigate.

Does your new employer accept a rollover? While plans are mandated to allow for a rollover out of a plan, it’s optional to accept a rollover into a new plan.

What kind of investment options does the rollover plan contain? Will the plan’s offerings provide for adequate diversification? Who is responsible for analyzing the invest-ments in a new plan? Do they review performance compared to an appro-priate benchmark?

Assets transferred from a Section 457 government Deferred Compen-sation plan must assume the cha-rateristics of the new plan. There is no penalty for distribution before age 59 1/2 in a 457.

Does your new rollover plan have any penalties for early distribution?What kind of access will you have to your account? What services are provided?

Indirect rollovers have a mandatory federal withholding of 20%. The state of Illinois Deferred Compensa-tion plan does not accept indirect rollovers.

How insistent is your broker/advisor that you move your assets and why? If an investment opportunity sounds too good to be true, it prob-ably is.

Be aware of the costs of a rollover. They can directly reduce your bal-ance, and possibly decrease your rate of return. (See chart below)

COSTS YOU COULD INCUR IN YOUR NEW ACCOUNT

New Plan Ill. Def. Comp.

Transfer Fees _________ $0

Front/Back Loads _________ $0

Commissions _________ 1 free per qtr.

Redemption Fees _________ $0

Sales Fees _________ $0

Management Fees _________ .15% annually

Fund Expense Ratios _________ .06% to 1.32%

44

$

WHEN DISTRIBUTIONS BEGIN

How Installment Payments are CalculatedThe amount of your installment payment is calculated by dividing your current account value by the total number of payments remaining. For example, if you choose five annual installments, the first installment amount will be your account value divided by five. The next year, the installment amount will be your account value at that time divided by four. You may choose any number of years or amount until you reach age 70 1/2. After that, your payments may have to be adjusted to comply with the minimum distribution requirement. The maximum period for payments can be no longer than your life expectancy, as projected by the IRS at the time of your sepa-ration.

If you elect fixed dollar install-ments, the amount may have to be adjusted periodically to meet federal distribution guidelines. If you choose installments, each installment may be electronically wired to your checking or savings account. Once you start distribu-tion, your payments will be made according to the Plan’s distribution schedule. Refer to it for specific ac-counting dates. Your payment is taken propor-tionally from each of your invest-ment options. For instance, if 60% of your money in the Deferred Compensation Plan is in Fund A and 40% is in Fund B, a $100 pay-ment would be taken proportional-ly from each Fund—$60 from Fund A and $40 from Fund B. Distribution Choices

Total Lump Sum: Your lump sum will be valued for distribution the first accounting date following the election period.

Partial Lump Sum: Your partial lump sum will be valued for distri-bution the first accounting date–for that type of payment–following the election period. The remainder will be paid as an annuity or in install-ments.

Installments: Your first installment–whether calculated or fixed dollar amount–will be valued for distribu-tion the first accounting date fol-lowing the election period.

45

YOUR INCOME TAX CONSEQUENCES

The State of Illinois Deferred Com-pensation Plan falls under Section 457 of the Internal Revenue Code. Your deferrals and earnings com-pound free of current taxes. However, Deferred Compensa-tion is fully taxable as retirement income when it is distributed to you or your beneficiary. Federal income tax withholding is also mandatory. New rules distinguish between distributions taken over ten or more years, and those that do not.

Distributions Over a Ten Year Period or GreaterIf you choose a distribution meth-od that extends for a period of ten years or more, your withholding will be calculated using the federal withholding tables based on the way you complete the W-4P form. No other income is considered when making this calculation. If you don’t complete a W-4P form, the withholding will be calculated at a rate of “married, claiming three dependents.”

Less Than Ten Year DistributionIf you choose a lump sum distribu-tion or a method that extends for less than ten years, the IRS requires a minimum of 20% be withheld. You may complete the W-4P to withhold more than 20%. If you do not complete a W-4P, 20% is with-held.

Your Account After You Leave State ServiceAfter you separate from state ser-vice, you may no longer defer or make contributions to your ac-count. However, as long as you have an account balance, you will con-tinue to earn interest and/or divi-dends and receive quarterly statements. You may also move money in your account from one investment option to another. Call T. Rowe Price toll-free at 800-922-9945 or visit their website at www.trowe-price.com anytime day or night to make transactions.

Social Security Not AffectedYour rights to Social Security will not be affected when your Deferred Compensation account is distributed. Your distribution has already been taxed for Social Secu-rity purposes. The Social Security Administra-tion does not consider your De-ferred Com-pensation distribution as earned income, so it does not affect the maximum a Social Security recipient can earn before payments are reduced.

46

47

ENTITLEMENTS

48

NOTES

49

PENSIONREGULAR FORMULA

The retirement formula for all active employees is a flat rate formula of 1.67% for employees with Social Security, and a flat rate formula of 2.2% for members not contributing to Social Security. The maximum pension is 75% of final average compensation.

Age and Service Requirements Age 60: 8 Years Service Credit Age 55: Min. 25 Years Service Credit(Reduced 1/2 of 1% for each month under age 60.) Any Age When Age & Years of Service Equal 85

Final Average Compensation (FAC)

Average of 48 highest consecutive months of earnings within the last 120 months of service.

BENEFIT FORMULA

Coordinated Member Noncoordinated Member1.67% for each year of credit 2.2% for each year of credit

Contributing Service X Formula % X FAC = $ Pension Amount (may not exceed 75%)

SERS ENTITLEMENTS

REQUESTING FORMS

• To change or update beneficiaries... request #101

• To request service credit information for:

• Qualifying periods • Short periods of

employment • Repayment of

refund • Leaves of absence • Military time • Free • Purchase • Leaves of absence ...request #2003

• To receive pension esti-mate or pension appli-cation packet...request #3901

The State Employees’ Retirement System (SERS) is responsible for the administration of retirement, death and disability benefits. The follow-ing information is a basic overview of SERS entitlements.

You must apply for all SERS benefits. In all cases, there are forms, eligibility parameters, and timeframes you must comply with. If you have questions, contact your Retirement Coordinator or SERS.

50

PENSION ALTERNATIVE FORMULA

All SERS members with 20 years of alternative formula service can retire using one of three salary components to give them the highest monthly pension: a monthly formula based on final rate of pay at retirement; an average of the last 48 months of service; or the average of the highest 48 consecutive months over the last 120 months (for members in service prior to January 1, 1998). The maximum pension is 80% of final average compensation.

Age and Service Requirements:

• Age 50 with 25 years of service credit.

• Age 55 with 20 years of service credit. Final Average Compensation is Figured one of Three Ways: • Average of the highest 48 consecutive months over the last 120 months of service (for members in service prior to January 1, 1998).

• Average of last 48 months of service.

• Final Rate of Pay: Cannot exceed the average of the last 24 months of pay by 115%.

Benefit Formula

Coordinated Member Noncoordinated Member 2.5% for each year of service 3.0% for each year of service

My Highest Dollar Calculation $ _____________.

My total years of credited service at retirement ____________. Years _________ X _________ % = _________ Total % (may not exceed 80%)

TOTAL % _______ X $ ____________* = MY PENSION

* Highest dollar amount of the three way dollar calculation

REQUESTING FORMS

• To change or update beneficiaries... request #101

• To request service credit information for:

• Qualifying periods • Short periods of

employment • Repayment of

refund • Leaves of absence • Military time • Free • Purchase • Leaves of absence ...request #2003

• To receive pension esti-mate or pension appli-cation packet...request #3901

51

DEATH(Beneficiaries)

My nominated beneficiary would receive a lump sum of $ ____________ from SERS.

My nominated beneficiary would receive a lump sum of $ ____________ from Group Insurance.

My nominated beneficiary would receive a lump sum of $ ____________ from Deferred Compensation.

Do I have nominated beneficiaries? _____________

Have I checked my statements to verify these nominations?___________

Do I understand the order of designation? ____________

Order ofMy Current SERS Beneficiaries are: Designation:

* _____________________________ __________

* _____________________________ __________ * _____________________________ __________

* _____________________________ __________

* _____________________________ __________

* Please verify these nominations with your current Statement of Account.

NOTES:

BENEFICIARIES

If you die while you are actively employed with qualified survivors, your nominated beneficiaries would receive the retire-ment portion of your SERS contributions plus interest. If you die while ac-tively employeed with no qualified survivors, your beneficiaries will receive your entire con-tributions, plus interest and up to six months salary.

52

DISABILITY(Non-Occupational)

Requirements: • Disability resulting from causes not related to your occupation.

• 18 months of credited service

• Off more than 30 days

• Granted a medical leave of absence.

• Used all of your accumulated sick leave.

• Have submitted the required forms.

My Monthly Salary or Final Average Compensation (whichever is higher) $ __________

X .50

* $ Amount of Disability Benefit

My Total Months of Credited Service, Not Including Any Service Used to Receive or Received From Disability Benefits:

__________

X .50 Total Months of Eligibility

* Subject to offset with Social Security Disability Benefits.

NOTES:

53

DISABILITY(Occupational)

Requirements: • Member of SERS

• Filed a claim with Illinois Industrial Commission or Risk Management and receive benefits under the Worker’s Compensation Act.

• Filed the required forms with SERS

Your Monthly Salary or Final Average Compensation (whichever is higher) $ _________

X .75

* $ Amount of Disability Benefit

* Subject to offset with Workers’ Compensation.

NOTES:

54

IF YOU HAVE QUESTIONS

For questions concerning the establishment of creditable service, call the Service & Refunds Division 217-785-7167.

For questions concerning a lump sum refund upon withdrawal from state employment, call the Service & Refunds Division 217-785-7187.

For questions concerning your current status, are to be directed to the Ac-counting Division 217-785-7202.

For questions concerning pension/retirement benefits, call the Claims Divi-sion 217-785-7343.

For questions concerning disability benefits, call the Claims Division 217-785-7318.

For questions concerning death benefits, call the Claims Division 217-785-7366.

State Retirement Systems 2101 South Veterans Parkway P. O. Box 19255 Springfield, IL 62794-9255 217-785-7444 Fax: 217-785-7019 TTD #: 217-785-7218

State Employees’ Retirement System Michael A. Bilandic Building 160 North LaSalle, Suite N-725 Chicago, IL 60601 312-814-5853 Fax: 312-814-5805

55

INSURANCE

56

NOTES

57

• Equal to 100% of annual salary rounded up to next $100

AFTER Retirement• Basic State Life - Free • Under age 60, equal to 100% of annual salary rounded up to the next $100 • Age 60 or older, reduces to $5,000

OPTIONAL GROUP LIFE INSURANCE COSTS

BEFORE Retire-ment & Retired Under age 60• May purchase up to eight times basic life.

• Accidental Death and Dismem-berment: Extra cost equal to either member’s basic life, or combined basic and optional.

• Spouse Life Insurance: $10,000 coverage at extra cost.

• Child Life Insurance: $10,000 for each child at extra cost.

GROUP INSURANCE INFORMATION

Remember: Your Group Life beneficiary and your SERS beneficiary are separate.

GROUP HEALTH COSTS

BEFORE Retirement for SERS members• Must pay a member-portion based on annual salary.

AFTER Retirement for SERS members• Premiums paid by State if you have 20 or more years of State service. Under 20 years of service must pay a member-portion based on full years of service: 5% credit for each full year of State service. (Example: 10 years X 5% = 50% State-paid).

For Dependents• Same premiums as an active member.

GROUP DENTAL INSURANCE COSTS

BEFORE and AFTER Retirement for SERS members and Depen-dents Covered Under the Dental Plan• Must pay a premium for Qual-ity Care dental plan.

GROUP LIFE INSURANCE COSTS

BEFORE Retirement• Basic State Life - Free

58

RETIRED AGE 60 and Above• May purchase or keep up to four times basic life. • If increasing coverage, you must complete a Health Certificate questionnaire which is subject to approval by the life insurance carrier.

• Spouse life insurance: $5,000 coverage at extra cost. Child life insurance: $10,000 for each eligible child at extra cost.

• All group life insurance pre-mium rates are shown in the an-nual CMS Benefit Choice Options brochure.

OTHER NON-GROUP INSURANCE COVERAGES

Unlike State Group Insurance—health, dental, life—other insurance coverages do not automatically continue in retirement. You must complete new payroll deduction authorization cards from the insur-ance company.

Do you know who your Group Life beneficiary is?

Check to make sure your designation is current and addresses of beneficiaries are up-to-date.

Life insurance beneficiary information is available through the current life administrator for the State of Illinois.

GROUP INSURANCE CONTACTS

State Employees Retirement SystemGroup Insurance Section217-785-7150

State Employees Retirement SystemChicago Office312-814-5853

Central Management Services (CMS)Group Insurance Division217-782-2548 or 800-442-1300

59

SOCIAL SECURITY

60

NOTES

61

SOCIAL SECURITY

An Overview of Benefits Under Social SecurityThe basic purpose of Social Secu-rity benefits is to replace part of the income lost due to the disabil-ity, death or retirement of a worker. It was never designed to replace income at a 100% rate. When you work in most jobs, you earn Social Security credits by having Social Security taxes deducted from your earnings. Your work history is used to determine your eligibility for retirement or disability benefits, or your fam-ily’s eligibility for survivor benefits when you die. Workers need to know what So-cial Security will provide and then design other insurance, savings, investments, and pensions around this basic plan.• You may begin receiving retire-ment benefits as early as age 62, but any benefits taken before full retirement age will cause a perma-nent reduction of benefits. If you delay your retirement past full retirement age, you will receive a larger monthly retire-ment benefit. Your family may also be eligible for benefits from your record when you retire. • If you become totally disabled, benefits may be paid to you and your family while you remain disabled. If you return to work in spite of your disability, there are work incentives that allow you a chance to try a job before you lose the Social Security monthly ben-

efit. Workers who receive disability for 24 months become eligible for Medicare. • In the event of your death, your family may be eligible for benefits. Insurance payments and pensions generally do not affect your Social Security survivor benefit. If your spouse paid into Social Security, the amount of benefits you are eligible for on your spouse’s record may be reduced or elimi-nated, due to the Government Pen-sion Offset. However, your spouse’s Social Security benefits will not be affected by your SERS pension.

Social Security Retirement Benefits Social Security retirement benefits may be paid as early as age 62 if you have at least 40 work credits (10 years). Benefits are paid based on your salary over a 40-year working period. Social Security uses the 35 highest years, indexed for inflation, and provides a percentage of that salary to you. If you were born after 1937, the age at which you can receive full benefits increases. As an example, a judge born in 1952 will be eligible to receive full benefits at age 66 (assuming you have enough credits). If you believe you will be af-fected in this way, contact the Social Security Administration at 1-800-772-1213, and request the fact sheet: A Pension for Work not Covered by Social Security.

To Get a Social Security Estimate

Go to www.socialsecurity.gov. Locate the search

box and type “WEP Cal-culator”. On the next page, scroll down and click on Social Security Online: WEP Calculator. Enter your information, including your Social Se-curity earnings as shown on your Social Security Statement. You will also

need for an estimate of your SERS benefit. The calculator will provide an

estimate of your Social Security benefit after the

WEP is considered.

62

Social Security’s website (www.socialsecurity.gov) is a valuable resource for information about all of Social Security’s programs. You can do the following:

• Apply for certain kinds of benefits

• Find the address for their local office

• Change your address

• Apply for a password to check your benefits or change your Direct Deposit

• Request a replacement Medicare card

• Confirm your benefit amount

• Find copies of their publications

Social Security Disability BenefitsSocial Security disability benefits may be paid to a person unable to engage in gainful employment as a result of physical or mental impair-ment which has lasted, or can be expected to last, for more than one year. Like Social Security retirement benefits, Social Security disability benefits are determined by average wages earned over a period of time. If you do not pay into Social Security as a State employee, your disability benefits from SERS are not affected in any way. If you pay into Social Security as a State employee, Social Security disability payments WILL affect your non-occupational disability benefit. If you have applied for SERS benefits because of a pregnancy, you will not be asked to apply for Social Security benefits.

Social Security Survivor Benefits Social Security provides four benefits upon death of a covered employee:

• A lump sum payment of $255 is paid to a worker’s widow(er) or to a person who is eligible for a child’s benefit.

• A survivor’s benefit is payable to the surviving spouse, if that spouse is over the age of 60. The amount of that benefit is 71–100% of what the worker would have been paid at retirement, depending on the age of the surviving spouse (100% if the spouse is over full retirement age).

• A survivor’s benefit is payable to each unmarried surviving child if they are:• Younger than 18• Between 18 and 19 years old and still in high school• Age 18 or older and severely disabled (the disability must have started before age 22).

• A survivor’s benefit is payable to a parent age 62 or older if the parent was receiving one-half of their support from the deceased child.

If you have questions about Social Security benefits, contact the Social Security Administration at 1-800-772-1213.

To Obtain Social Security Overview

Call 1-800-772-1213Ask for Pamplet, “Understanding

the Benefits”

63

ESTATE PLANNING

64

65

ESTATE PLANNING OUTLINE

I. Estate Planning - Basic Definitions A. Planning for ownership and transfer of property 1. Contrast with Financial Planning 2. Discussions based on Illinois Law 3. Glossary of Terms B. What is an Estate? 1. Real Property 2. Personal Property 3. Ways to “Own” Property a. Sole Ownership i. Creditor’s rights during life ii. Exemptions: Homestead, Personal, Retirement Accounts b. Co-Ownership i. Joint Tenancy: Passes to survivor ii. Tenants in Common: Share controlled by will or statute iii. If do not use term “joint tenancy with right of survivorship”, then have created tenancy in common (exception – vehicle titles) iv. Creditor problems: creditors of co-owners may claim an interest c. Transfer on Death i. Owner or owners have complete control until death of all owners ii. Name beneficiary or beneficiaries iii. Direct transfer to beneficiary; will does not control; not subject to claims or probate iv. Any type of asset including real estate d. Tenancy by the Entirety i. Only residence & spouses ii. Acts like Joint Tenancy passing sole ownership to surviving spouse iii. Protection from creditors of one spouse iv. Can’t return to different form of ownership e. Trust Ownership (see Part V)

II. Division of Your Estate A. Property in decedant’s name only B. Death without will (Intestacy) 1. Married with no descendants: all to spouse 2. Single with children: all to descendants 3. Married with children: half to spouse; half to descendants 4. No spouse or descendants: Siblings & parents 5. No spouse, descendants, parents, siblings, nieces or nephews: Descendants of grand- parents, one-half to cousins on each side of family 6. No relatives: Escheat to county or state, rare C. Death with Will D. Renunciation by spouse 1. 1/3 with children 2. 1/2 with no children

III. Why A Will Is Necessary A. May want spouse to have it all B. Distribution of property 1. Minor children 2. Charitable donations 3. Changes in shares & gifts C. Name Executor D. Name Guardian vs. Court-Appointed 1. Guardian of estate 2. Guardian of person 3. Doesn’t terminate other parent’s parental rights to custody E. Waive surety on bond F. Distributes property on death of surviving spouse G. Wills - formal execution 1. Two witnesses 2. Notarization not required 3. Only filed after death with Circuit Court clerk of county of decedent’s residence H. Codicil to change portion of will

IV. Selecting executors, trustees, attorneys & accountants A. Executor 1. Individual or corporate 2. If individual 3. If corporate 4. Bond or surety for executive decision

66

B. Trustees C. Fees D. Accountants

V. Trusts A. Definition 1. Trust Fund 2. Grantor 3. Trustee 4. Beneficiary B. Basics 1. All three parties may be same person 2. May use bank as trustee 3. May use provision only giving all or part of income for periods determined by grantor 4. Beneficiary may receive interest directly, avoiding probate, upon death of grantor or other beneficiary 5. May require surety bond of trustee C. Non-Tax Advantages 1. Beneficiary cannot legally manage funds 2. Beneficiary lacks judgement in opinion of grantor 3. Beneficiary is a “special needs” person who is physically or mentally disabled. Amount in trust does not count toward Medicaid or other means tested governmental programs 4. Grantor wants beneficiary to have only life- time use of funds 5. May avoid probate 6. Insulates trust from claims of non-grantor beneficiaries’ creditors through spendthrift clause 7. Privacy 8. Flexibility 9. Use as “Conduit” for IRA’s, etc. D. Tax Effects 1. Federal and state estate tax if: a. Retain income, or b. Retain power to change beneficiaries c. Retain power to revoke or amend trust 2. Income Taxes E. Disadvantages 1. Cost 2. Complexity 3. Restrictions

VI. Revocable Living Trusts - Definitions A. May change trust anytime during lifetime B. Payment to yourself at own request

C. Pays debts, etc. at death D. Added advantage of management E. Not all assets suitable F. Best suited for retirement age G. Saves expenses

VII. Probate A. Definition: court-supervised process to: 1. Collect probate assets 2. Pay debts, expenses, taxes (6 month claim) 3. Distribute assets 4. Creates a public record B. How To avoid 1. Life insurance 2. Joint tenancies and transfer on death a. Joint tenancy: children, minors & problems i. Bank accounts ii. Real estate iii. Stocks b. “Convenience” joint tenancies - dangers c. May control no assets 3. Trusts 4. Use of small estate affidavit if bank accounts, equities, etc. in decedent’s name alone under $100,000 C. Why Avoid 1. Expense 2. Lack of privacy 3. Inconvenience 4. Delay of claim periods (6 months) D. Disadvantages of probate avoidance 1. Short claim period foregone - six months if probate; two years for claims if no probate 2. Income tax advantages may be lost if estate or trust is not a “taxpayer” 3. Savings may not be as great 4. Increased initial expense

VIII. Estate Tax (Illinois & Federal Use Same System) A. 2011 Estate Tax 1. Federal Estate Tax: $5 million exemption 2. Illinois Estate Tax: $2 million exemption B. Amount to spouse or charity always exempt C. Taxable Estate - All property in which decedent retained income or could designate beneficiary 1. Life insurance owned by decedent 2. Retirement plans 3. Revocable trusts 4. Joint tenancy extent of contributions D. If taxable under U.S. and Illinois at 2011

67

exemptions, combined rate over $5 million is approximately 43% E. 2012 Estate Tax 1. Federal Estate Tax: $5 million exemption 2. Illinois Estate Tax: $3.5 million exemption F. 2013 Estate Tax 1. Controlled by possible federal legislation 2. Could fall back to $1 million exemption

IX. Gift Tax A. $13,000 per year per person annual exclusion B. $5 million lifetime exemption over exclusion gifts C. Use of lifetime exemption reduces estate tax exemption

X. Income Tax A. Gifts & inheritance are not taxable income B. Interest, dividends and other post-gift or post- death earnings on gifts or inheritances are taxable income C. Exception: Inheritance of an asset which includes untaxed income. For example, IRA’s, 401k’s, deferred compensation, e-bonds or annuities will accrue untaxed income, the un- taxed amount will be taxable to the beneficiary D. Surviving spouse may “rollover” IRA, 401k, deferred compensation, etc.; others may not. Other survivors must withdraw at least a minimum amount each year which is deter- mined by actuarial table

XI. Powers of Attorney/Advance Directives Forms 1. Power of Attorney for Property and Health Care www.gac.state.il.us 2. Living Will, Power of Attorney for Health Care, Do Not Resuscitate Order www.idph.state.il.us/public/books/advin.htm A. Principal – person giving power B. Agent – person receiving power C. Power of attorney for property 1. Lifetime document only (not a will) 2. Broad or narrow as wanted 3. Power to make gifts must be added 4. Must be notarized 5. Quick, easy, cheap BUT no surety or guarantee of negilence or malfeasance by agent D. Power of Attorney for Health Care (POAHC) 1. Broad or narrow as desired 2. Question of life-sustaining treatment

3. Witnessed by one adult citizen of U.S. F. Living Will 1. Declaration only affecting issue of death delaying procedures 2. Two witnesses 3. Useful if do not want health care agent 4. If have both, should match Power of Attorney for Healthcare F. Do Not Resuscitate Order 1. P.O.A. for health care or living will do not control ambulance staff 2. Avoids resuscitation by ambulance staff 3. Kept at bedside of patient G. Declaration for mental health treatment 1. Gives directions for types of treatment 2. Provides for consent or denial for admission to mental health facility 3. Names “attorney-in-fact” (similar to Powers agent) to make decisions regarding mental health treatment 4. Becomes effective when two physicians or judge determine principal is incapable of making decisions 5. Effective for 3 years. If principal becomes incapable during 3 years and declaration is invoked, effective until principal becomes capable H. Appointment of authorized person under HIPAA, may be contained in POAHC 1. May execute a document authorizing persons to access health information 2. Can be useful for doctor records, hospital records, pharmacy records when person is incompetent or homebound 3. Often used in connection with power of attorney for healthcare which is a state mat- ter; HIPAA is federal legislation and appointment must comply with federal regulations

XII. Antenuptial Agreement A. Control Distribution B. Waive Right to Renounce

XIII. Safekeeping Documents A. Keep in safe place/organization B. Untitled assets C. Power of attorney D. Living will E. Funeral directions F. Update your plan

68

WHY SHOULD I WORRY ABOUT ESTATE PLANNING?

AN ESTATE INVENTORY

If you own a home, have invested money, and are in a pension plan, the value of your estate is likely to be greater than you think. Here’s a check-list of what might be included:

• Real estate

• Securities (stocks, bonds, mutual funds)

• Outstanding interest & dividends

• Bank accounts

• All tangible personal property

• Life insurance policies

• No-fault insurance payments due to you

• Annuities paid by contract or agreement

• Value of any qualified pension plans, including IRAs

• Income tax refunds

• Forgiven debts

• Closely held businesses

• Oil, gas & coal rights

Many people don’t think about estate planning until they have one foot in the grave–if they even get that opportunity. If you have a family depending on you, you should definitely think about it. While it may seem morbid to make plans in case you die unex-pectedly, it is very important.

What is Your Estate?Your estate is everything you own in your name, and your share of anything you own with other people. Your property can be real–land and buildings–or per-sonal–jewelry, a stamp collec-tion, furniture, etc. Money is property too, as are stocks and bonds, mutual fund accounts, or a life insurance policy. The actual value of your estate is figured only after you die–when you’re not around!

Important Reasons for Estate PlanningSince you own the property in your estate, it’s your right to say what will happen to it. But unless it’s written down, there’s no assurances your wishes will be respected. There are several ways to make clear what you want to happen to your estate.

• You can write a will to specify who gets what after you die.• You can create trusts to pass property, or income from that property, to others.• You can name beneficiaries on pension funds, insurance policies, and other investments so they will receive the payouts directly.• You can own property with

other people, so it becomes theirs when you die.

Since will and trusts are legal documents, you should consult a lawyer about them. Naming beneficiaries is simpler,

usually requiring only your signature. And owning joint property, such as

homes and bank accounts–usually with your spouse–is fairly standard.

Other Important Considerations:• Name an executor for your estate.• Name a guardian for your de-pendent children.• Ease the settlement of your estate for your heirs.• Protect yourself during a time of incompetency. Draw up a living will.

69

ESTATE VS. INHERITANCE TAX

ESTATE TAX is based on the value of your property, and usually paid by the estate. There’s a federal estate tax and some state estate tax.

INHERITANCE TAX is owed by your heirs to pay for the value of the property they receive from your estate. You can specify in your will that your estate will pay any inheritance taxes due to save your heirs from having to sell property they inherit in order to pay the tax. However, Illinois does not have an inheritance tax.

ESTATE-TAX PHASEOUT

The federal estate tax is scheduled to be set at $1,000,000 for the near future. This is the amount each person can pass free of federal estate tax with a 55% tax rate. How to Figure Estate Tax

1. Determine the value of your estate.

2. Subtract the estate’s expenses to find the taxable estate amount.

3. Figure the tax due on the value of the taxable estate.

4. Subtract the tax credit to find the net estate taxes.

Acting as ExecutorAlmost anyone can serve as an executor, as long as they’re not a minor. Some states require that you also be a U.S. citizen. Other states require you to be a state resident to serve as an executor unless you’re a close relative. You’re disqualified from serv-ing as an executor if you’ve ever been convicted of a serious crime or if you’re a judge. In any case, an executor must be confirmed by the probate court. As executor, you have legal responsibilities that begin as soon as the maker of the will dies. The process can take a few weeks, but can run longer than a year. At each step, you have to report your prog-ress to the court.

Consult a Specialist for:

• Estate planning.• Making or revising a will.• Establishing a trust.• Settling an estate.• Setting up joint ownership of a property.• Establishing power of attorney or guardianship.• Caring for yourself if you become disabled.

On the following pages there are a number of forms you can fill out to protect your wishes if you should die unexpectedly.

70

LIVING WILLS

A living will is a legal document that contains your written instructions about what level of medical treatment you want in the event that you are unable to express your wishes verbally. For instance, you may want all possible measures taken to keep you alive – or you could instruct that nothing be done to keep you alive. The Living Will Act defines “terminal condition” as “an incurable and irreversible condition where death is imminent and the application of death-delaying procedures serves only to prolong the dying process.”

What Does a Living Will Do?A living will directs a physician not to artificially prolong life if death is imminent. The physician is allowed to maintain the care necessary to provide comfort and dignity, while the fatal illness takes its natural course.

How Would a Person Decide Whether or Not to Create a Living Will?An individual should consider the various implications of the living will: medical, financial, religious or ethical, and personal–especially the effect on family members. It might be helpful to discuss the living will with persons who have had the experience of caring for a terminally ill relative or friend. Although signing the living will is a personal decision, that deci-sion will affect others, especially members of the family. Therefore, an individual might want to discuss

the living will with one or more of the following individuals: spouse, children, close relatives or friends, physician or other health care professional, attorney or financial advisor.

What Are the Reasons for Creating a Living Will?The first reason for creating a living will is to help ensure that one’s wishes be honored. The other reason is to protect family mem-bers, health care professionals, and others from the stress and potential conflict of making critical deci-sions without sufficient informa-tion concerning an incapacitated patient’s preferences.

What Are the Requirements and Provisions For Creating a Living Will?The individual must be of sound mind and at least 18 years old. A living will must be signed in the presence of at least two witnesses. A witness must be at least 18 years old and cannot be a benefi-ciary under the will, or have finan-cial responsibility for the declar-ant’s medical care.

How Are Living Wills Put Into Effect?The individual is required to notify their physician and provide him with a copy of the living will. The physician is required to include

71

a copy of the living will in the patient’s medical records. Before the living will may be implemented, the attending physi-cian must certify in writing that the individual has a terminal con-dition.

How Does One Revoke a Living Will?The living will can be revoked by destroying the document or by written revocation. The living will can also be cancelled by oral revocation if it is done in the pres-ence of a witness 18 years of age or older, who then creates a writ-ten document which is signed and dated by the witness. If there are copies of the living will in different places, it is advis-able to retrieve the copies or send a written revocation.

How Does a Living Will Affect Physicians?Under Illinois law, health care providers are protected from civil and criminal liability for withhold-ing or withdrawing death-delay-ing treatment in compliance with living wills. The attending physician must examine and determine if the indi-vidual is terminally ill. Physicians

generally honor living wills, and carry out the will’s instructions.

Can a Health Care Provider Re-quire a Person to Make a Living Will?No health care provider can force you to sign a liv-ing will. The Living Will Act specifi-cally pro-hibits health care provid-ers from requiring a person to execute a living will as a condition for receiving health care services.

If you need further assistance, call either of these toll-free telephone numbers: Illinois Attorney General 1-800-243-5377100 West Randolph St.Chicago, IL 60601

Illinois Attorney General 1-877-305-5145500 South Second St.Springfield, IL 62706

72

LIVING WILL

THIS DECLARATION, made this day of 20 .

I, , being of sound mind, willfully and voluntarily make known my desires that my moment of death shall not be artificially postponed. If at any time I should have an incurable and irreversible injury, disease, or illness judged to be a terminal condition by my attending physician who has personally examined me and has determined that my death is imminent except for death delaying procedures, I direct that such procedures which would only prolong the dying process be withheld or withdrawn, and that I be permitted to die naturally with only the administration of medication, sustenance, or the performance of any medical procedure deemed necessary by my attending physician to provide me with comfort care.

In the absence of my ability to give directions regarding the use of such death delaying proce-dures, it is my intention that this declaration shall be honored by my family and physician as the final expression of my legal right to refuse medical or surgical treatment and accept the conse-quences from such refusal.

Signed:

City, County and State of Residence:

The declarant is personally known to me and I believe him or her to be of sound mind. I saw the declarant sign the declaration in my presence (or the declarant acknowledged in my pres-ence that he or she had signed the declaration) and I signed the declaration as a witness in the presence of the declarant. I did not sign the declarant’s signature above for or at the direction of the declarant. At the date of this instrument, I am not entitled to any portion of the estate of the declarant according to the laws of intestate succession or, to the best of my knowledge and belief, under any will of declarant or other instrument taking effect at declarant’s death, or directly financially responsible for declarant’s medical care.

Witness:

Witness:

Distributed by the Office of the Attorney General, Senior Citizen Advocacy Division.

73

DURABLE POWER OF ATTORNEY

What Are the Advantages?Durable Powers of Attorney are flexible legal arrangements and apply to a number of situations. They permit you to decide who should make decisions on your behalf rather than leaving the deci-sion-making to the courts. It also saves your relatives from the burden of making decisions without knowing your wishes.Durable Powers of Attorney can be used by anyone who wants life-pro-longing treatments continued, as well as those who do not. For example, you may or may not want to receive life-sustaining measures if you suffer an irrevers-ible coma. You may instruct your agent to withhold food and fluids or to not administer cardio-pul-monary resuscitation (CPR) under certain circumstances.

What Are the Legal Requirements or Provisions?Illinois law does not require an attorney to prepare your Durable Power of Attorney document, but you may choose to involve your lawyer anyway. Before executing your docu-ment, talk to the person whom you want to be your agent and review your wishes for the types of medi-cal treatment and/or disposition of your property. Your agent must be over the age of eighteen, cannot be your doctor, or someone who is paid to provide you with health care services.

You must have the Durable Power of Attorney for Health Care witnessed. The Durable Power of At-torney for Property must be signed and notarized. Send the original form to your agent and copies to your lawyer, your doctor, and fam-ily members. It is advisable to have one or more successor agents in case the primary agent is unavailable. The individuals you appoint should be people you have a great deal of trust in and can rely upon to act according to your interests.

How Long Will Your Durable Power of Attorney Last?You can specify the time which the Durable Powers of Attorney will be-gin and end. Your document should state all duties, limitations, immu-nities and other terms applicable to the agent. The Durable Power of Attorney for Health Care may be revoked by destroying it, written revocation, or oral revocation. The revocation must be made in the presence of a witness 18 years of age or older who then puts the revocation in writing.

A Durable Power of Attorney allows you to delegate a trusted friend or family member to become your agent for any decisions if you become incompetent. The agent speaks for you and makes decisions according to your wishes during periods of physical or mental incapacity. In Illinois, there are two statutory power of attorney forms–one for health care and the other for property.

74

The Durable Power of Attor-ney for Health Care can also

be effective after death to authorize your agent to deal with an autopsy, ana-tomical gifts and burial.

The Durable Power of Attor-ney for Property may be revised in any matter at any time. Unless

you state an earlier termina-tion date, the document will continue until your death.

When Should You Obtain a Du-rable Power of Attorney?Anyone over age eighteen can ob-tain a Durable Power of Attorney. It should be done long before you anticipate anything happening to you. This will ensure that if you are ever in a situation where you need an agent, you will have one.

Will My Durable Power of Attor-ney Be Recognized in Other States?Most state statutes do recognize a Durable Power of Attorney. Since there are variations between state laws, all documents should be wit-nessed and notarized. If you need further assistance, call either of these toll-free telephone numbers:

Illinois Attorney General 1-312-814-3000100 West Randolph St.Chicago, IL 60601

Illinois Attorney General 1-877-305-5145500 South Second St.Springfield, IL 62706

75

NOTICE TO THE INDIVIDUAL SIGNING THE ILLINOISSTATUTORY SHORT FORM POWER OF ATTORNEY FOR HEALTH CARE

PLEASE READ THIS NOTICE CAREFULLY. The form that you will be signing is a legaldocument. It is governed by the Illinois Power of Attorney Act. If there is anything about this form that you do not understand, you should ask a lawyer to explain it to you.

The purpose of this Power of Attorney is to give your designated “agent” broad pow-ers to make health care decisions for you, including the power to require, consent to, or withdraw treatment for any physical or mental condition, and to admit you or discharge you from any hospital, home, or other institution. You may name succes-sor agents under this form, but you may not name co-agents.

This form does not impose a duty upon your agent to make such health care deci-sions, so it is important that you select an agent who will agree to do this for you and who will make those decisions as you would wish. It is also important to select an agent whom you trust, since you are giving that agent control over your medical decision-making, including end-of-life decisions. Any agent who does act for you has a duty to act in good faith for your benefit and to use due care, competence, and diligence. He or she must also act in accordance with the law and with the statements in this form. Your agent must keep a record of all significant actions taken as your agent.

Unless you specifically limit the period of time that this Power of Attorney will be in effect, your agent may exercise the powers given to him or her throughout your lifetime, even after you become disabled. A court, however, can take away the powers of your agent if it finds that the agent is not acting properly. You may also revoke this Power of Attorney if you wish.

The Powers you give your agent, your right to revoke those powers, and the penalties for violating the law are explained more fully in Sections 4-5, 4-6, and 4-10(c) of the Illinois Power of Attorney Act. This form is a part of that law. The “NOTE” paragraphs throughout this form are instructions.

You are not required to sign this Power of Attorney, but it will not take effect without your signature. You should not sign it if you do not understand everything in it, and what your agent will be able to do if you do sign it.

Put your initials on the following line indicating that you have read this Notice:

___________________(Principal’s initials)

76

ILLINOIS STATUTORY SHORT FORMPOWER OF ATTORNEY FOR HEALTH CARE

1. I, ______________________________________________________________________________,

(insert name and address of principal)

hereby revoke all prior powers of attorney for health care executed by me and appoint:

____________________________________________________________________________________

(insert name and address of agent)

(NOTE: You may not name co-agents using this form.) as my attorney-in-fact (my “agent”) to act for me and in my name (in any way I could act in person) to make any and all decisions for me concerning my personal care, medical treatment, hospitalization and health care and to require, withhold or withdraw any type of medical treatment or procedure, even though my death may ensue.

A. My agent shall have the same access to my medical records that I have, including the right to disclose the contents to others.

B. Effective upon my death, my agent has the full power to make an anatomical gift of the following:

(NOTE: Initial one. In the event none of the options are initialed, then it shall be concluded that you do not wish to grant your agent any such authority.)

____ Any organs, tissues, or eyes suitable for transplantation or used for research or education.

____ Specific Organs:____________________________________________________

____ I do not grant my agent authority to make any anatomical gifts.

C. My agent shall also have full power to authorize an autopsy and direct the disposi-tion of my remains. I intend for this power of attorney to be in substantial compliance with Section 10 of the Disposition of Remains Act. All decisions made by my agent with respect to the disposition of my remains, including cremation, shall be binding. I hereby direct any cemetery organization, business operating a crematory or columbarium or both, funeral director or embalmer, or funeral establishment who receives a copy of this document to act under it.

77

D. I intend for the person named as my agent to be treated as I would be with respect to my rights regarding the use and disclosure of my individually identifiable health infor-mation or other medical records, including records or communications governed by the Mental Health and Developmental Disabilities Confidentiality Act. This release authority applies to any information governed by the Health Insurance Portability and Account-ability Act of 1996 (“HIPAA”) and regulations thereunder. I intend for the person named as my agent to serve as my “personal representative” as that term is defined under HIPAA and regulations thereunder.

(i) The person named as my agent shall have the power to authorize the release of infor-mation governed by HIPAA to third parties.

(ii) I authorize any physician, health care professional, dentist, health plan, hospital, clinic, laboratory, pharmacy or other covered health care provider, any insurance com-pany and the Medical Informational Bureau, Inc., or any other health care clearinghouse that has provided treatment or services to me, or that has paid for or is seeking payment for me for such services to give, disclose, and release to the person named as my agent, without restriction, all of my individually identifiable health information and medi-cal records, regarding any past, present, or future medical or mental health condition, including all information relating to the diagnosis and treatment of HIV/AIDS, sexually transmitted diseases, drug or alcohol abuse, and mental illness (including records or communications governed by the Mental Health and Developmental Disabilities Confi-dentiality Act).

(iii) The authority given to the person named as my agent shall supersede any prior agreement that I may have with my health care providers to restrict access to, or dis-closure of, my individually identifiable health information. The authority given to the person named as my agent has no expiration date and shall expire only in the event that I revoke the authority in writing and deliver it to my health care provider.

(NOTE: The above grant of power is intended to be as broad as possible so that your agent will have the authority to make any decision you could make to obtain or ter-minate any type of health care, including withdrawal of food and water and other life-sustaining measures, if your agent believes such action would be consistent with your intent and desires. If you wish to limit the scope of your agent’s powers or prescribe special rules or limit the power to make an anatomical gift, authorize autopsy or dispose of remains, you may do so in the following paragraphs.)

78

2. The powers granted above shall not include the following powers or shall be subject to the following rules or limitations:

(NOTE: Here you may include any specific limitations you deem appropriate, such as: your own definition of when life-sustaining measures should be withheld; a direction to continue food and fluids or life-sustaining treatment in all events; or instructions to refuse any specific types of treatment that are inconsistent with your religious beliefs or unacceptable to you for any other reason, such as blood transfusion, electro-convulsive therapy, amputation, psychosurgery, voluntary admission to a mental institution, etc.)

______________________________________________________________________________________

______________________________________________________________________________________

______________________________________________________________________________________

______________________________________________________________________________________

______________________________________________________________________________________

(NOTE: The subject of life-sustaining treatment is of particular importance. For yourconvenience in dealing with that subject, some general statements concerning the with-holding or removal of life-sustaining treatment are set forth below. If you agree with one of these statements, you may initial that statement; but do not initial more than one. These statements serve as guidance for your agent, who shall give careful consideration to the statement you initial when engaging in health care decision-making on your behalf.)

I do not want my life to be prolonged nor do I want life-sustaining treatment to be provided or continued if my agent believes the burdens of the treatment outweigh the ex-pected benefits. I want my agent to consider the relief of suffering, the expense involved and the quality as well as the possible extension of my life in making decisions concern-ing life-sustaining treatment.

Initialed __________

I want my life to be prolonged and I want life-sustaining treatment to be provided or continued, unless I am, in the opinion of my attending physician, in accordance with rea-sonable medical standards at the time of reference, in a state of “permanent unconscious-ness” or suffer from an “incurable or irreversible condition” or “terminal condition”, as those terms are defined in Section 4-4 of the Illinois Power of Attorney Act. If and when I am in any one of these states or conditions, I want life-sustaining treatment to be with-held or discontinued.

Initialed __________

I want my life to be prolonged to the greatest extent possible in accordance with reason-able medical standards without regard to my condition, the chances I have for recovery or the cost of the procedures.

Initialed __________

79

(NOTE: This power of attorney may be amended or revoked by you in the manner pro-vided in Section 4-6 of the Illinois Power of Attorney Act. )

3. This power of attorney shall become effective on:____________________________________

______________________________________________________________________________________

(NOTE: In Line 3 above, insert a future date or event during your lifetime, such as a courtdetermination of your disability or a written determination by your physician that you are incapacitated, when you want this power to first take effect.)

(NOTE: If you do not amend or revoke this power, or if you do not specify a specific end-ing date in paragraph 4, it will remain in effect until your death; except that your agent will still have the authority to donate your organs, authorize an autopsy, and dispose of your remains after your death, if you grant that authority to your agent.)

4. This power of attorney shall terminate on:___________________________________________

______________________________________________________________________________________

(NOTE: In Line 4 above, insert a future date or event, such as a court determination that you are not under a legal disability or a written determination by your physician that you are not incapacitated, if you want this power to terminate prior to your death.)

(NOTE: You cannot use this form to name co-agents. If you wish to name successor agents, insert the names and addresses of the successors in paragraph 5.)

5. If any agent named by me shall die, become incompetent, resign, refuse to accept the office of agent or be unavailable, I name the following (each to act alone and successively, in the order named) as successors to such agent:

______________________________________________________________________________________(insert name and address of successor agent)

______________________________________________________________________________________(insert name and address of successor agent)

For purposes of this paragraph 5, a person shall be considered to be incompetent if and while the person is a minor, or an adjudicated incompetent or disabled person, or the person is unable to give prompt and intelligent consideration to health care matters, as certified by a licensed physician.

(NOTE: If you wish to, you may name your agent as guardian of your person if a court decides that one should be appointed. To do this, retain paragraph 6, and the court will appoint your agent if the court finds that this appointment will serve your best interests and welfare. Strike out paragraph 6 if you do not want your agent to act as guardian.)

6. If a guardian of my person is to be appointed, I nominate the agent acting under this power of attorney as such guardian, to serve without bond or security.

7. I am fully informed as to all the contents of this form and understand the full import of this grant of powers to my agent.

Dated:_______________________ Signed:_________________________________________________

(principal’s signature or mark)

80

The principal has had an opportunity to review the above form and has signed the form or acknowledged his or her signature or mark on the form in my presence. The under-signed witness certifies that the witness is not: (a) the attending physician or mental health service provider or a relative of the physician or provider; (b) an owner, operator, or relative of an owner or operator of a health care facility in which the principal is a patient or resident; (c) a parent, sibling or descendant, or any spouse of such parent, sib-ling, or descendant of either the principal or any agent or successor agent under the fore-going power of attorney, whether such relationship is by blood, marriage, or adoption; or(d) an agent or successor agent under the foregoing power of attorney.

______________________________________

(Witness Signature)

______________________________________

(Print Witness Name)

______________________________________

(Street Address)

______________________________________

(City, State, ZIP)

(NOTE: You may, but are not required to, request your agent and successor agents to provide specimen signatures below. If you include specimen signatures in this power of attorney, you must complete the certification opposite the signatures of the agents.)

Specimen signatures of agent (and successors). I certify that the signatures of my agent (and successors) are correct.

________________________________________ ________________________________________(agent) (principal)

________________________________________ ________________________________________(successor agent) (principal)

________________________________________ ________________________________________(successor agent) (principal)

(NOTE: The name, address, and phone number of the person preparing this form or who assisted the principal in completing this form is optional.)

___________________________________

(name of preparer)

___________________________________

(address)

___________________________________

(address)

___________________________________

(phone)

81

ILLINOIS STATUTORY SHORT FORMPOWER OF ATTORNEY FOR PROPERTY

Notice: The purpose of this Power of Attorney is to give your designated “agent” broad powers to handle your financial

affairs, including power to pledge, sell or otherwise dispose of any real or personal property without advance notice

to you or approval by you. This form does not impose a duty on your agent to handle your financial affairs; but it is

important to select an agent who agrees to do this. Select an agent you trust, since you are giving your agent control

over your financial affairs and property. Your agent must keep a record of all receipts, disbursement and significant

actions taken by your agent. A court can take away the powers of your agent if it finds the agent is not acting prop-

erly. You may name successor agents under this form but not co-agents. Unless you expressly limit the duration of this

Power of Attorney your agent may exercise the powers throughout your lifetime, until you revoke this power or a court

acting on your behalf terminates it. The powers you give your agent are explained in Section 3-4 of this Act. That law

expressly permits the use of any different form of power of attorney you may desire. If there is anything about this form

that you do not understand, you should ask a lawyer to explain it to you.

Power of Attorney made this day of (month) (year)

1. I, (name of principal)

(insert address of principal) ________________________________________________________________ , hereby

appoint (insert name of agent) ______________________________________________________________________

(insert address of agent) ____________________________________________________________________________

as my attorney-in-fact (my “agent”) to act for me and in my name (in any way I could act in person) with respect to the following powers, as defined in Section 3-4 of the “Statutory Short Form Power of At-torney for Property Law” (including all amendments), but subject to any limitations on or additions to the specified powers inserted in paragraph 2 or 3 below:

(You must strike out any one or more of the following categories of powers you do not want your agent to have. Failure to strike the title of any category will cause the powers described in that category to be granted to the agent. To strike out a category you must draw a line through the title of that category.)

(a) Real estate transactions (i) Tax matters

(b) Financial institution transactions (j) Claims and litigation

(c) Stock and bond transactions (k) Commodity and option transactions

(d) Tangible personal property transactions (l) Business operations

(e) Safe deposit box transactions (m) Borrowing transactions

(f) Insurance and annuity transaction (n) Estate transactions

(g) Retirement plan transactions (o) All other property powers and transactions

(h) Social Security, employment & military service benefits

Page 1 of 4

82

(Limitations on and additions to the agent’s powers may be included in this Power of Attorney if they are

specifically described below.)

2. The powers granted above shall not include the following powers or shall be modified or limited in

the following particulars (here you may include any specific limitations you deem appropriate, such as

a prohibition or conditions on the sale of particular stock or real estate or special rules on borrowing

by the agent):

3. In addition to the powers granted above, I grant my agent the following powers (here you may add

any other delegable powers including, without limitation, power to make gifts, exercise powers of ap-

pointment, name or change beneficiaries or joint tenants or revoke or amend any trust specifically

referred to below):

(Your agent will have authority to employ other persons as necessary to enable the agent to properly exercise

the powers granted in this form, but your agent will have to make all discretionary decisions. If you want to

give your agent the right to delegate discretionary decision-making powers to others, you should keep the next

sentence, otherwise it should be struck out.)

4. My agent shall have the right by written instrument to delegate any or all of the foregoing powers

involving discretionary decision-making to any person or persons whom my agent may select, but such

delegation may be amended or revoked by any agent (including any successor) named by me who is act-

ing under this Power of Attorney at this time of reference.

(Your agent will be entitled to reimbursement for all reasonable expenses incurred in acting under this power of attorney. Strike out the next sentence if you do not want your agent to also be entitled to reasonable com-

pensation for services as agent.)

5. My agent shall be entitled to reasonable compensation for services rendered as agent under this

power of attorney.

This power of attorney may be amended or revoked by you in the manner provided in Section 4-6 of the Illinois “Powers of Attorney for Property Law.” Absent amendment or revocation, the authority granted in this power of attorney will become effective at the time this power is signed and will continue until your death unless a limitation on the beginning date or duration is made by initialing and completing one or both) of paragraphs 6 and 7.

Short Form Power of Attorney for Property Page 2 of 4

83

6. ( ) This power of attorney shall become effective on (insert a future date or event during your

lifetime, such as court determination of your disability, or a written determination by your disability,

when you want this power to first take effect):

7. ( ) This power of attorney shall terminate on (insert a future date or event during your lifetime,

such as court determination of your disability, when you want this power to terminate before your death).

If you wish to name successor agents, insert the names and addresses of such successors in the following

paragraph.

8. If any agent named by me shall die, become incompetent, resign or refuse to accept the office of agent,

I name the following (each to act alone and successively, in the order named) as successor(s) to such agent:

For purposes of this paragraph 8, a person shall be considered to be incompetent if and while the person

is a minor or an adjudicated incompetent or disabled person or the person is unable to give prompt and

intelligent consideration to health care matters, as certified by a licensed physician.

If you wish, you may name your agent as guardian of your estate, in the event a court decides that one should be appointed. To do this, retain paragraph 9, and the court will appoint your agent if the court finds that this appointment will serve your best interests and welfare. Strike out paragraph 9 if you do not want your agent to act as guardian.

9. If a guardian of my estate (my property) is to be appointed, I nominate the agent acting under this

power of attorney as such guardian, to serve without bond or security.

10. I am fully informed as to all the contents of this form and understand the full import of this grant of

powers to my agent.

Signed (Principal) ___________________________________________________________________________

(You may, but are not required to, request your agent and successor agents to provide specimen signatures below. If you include specimen signatures in this power of attorney, you must complete the certification opposite the signatures of the agent and successors.)

Specimen signatures of agents (and successors) I certify that the signatures of my agent(s) are correct

Agent Principal

Successor Principal

Successor Principal

Short Form Power of Attorney for Property Page 3 of 4

84

(This power of attorney will not be effective unless it is notarized and signed by at least one

additional witness, using the form below. Note: The requirement of the signature of an

additional witness applies only to instruments executed on or after June 9, 2000, the

effective date of Public Act 91-790.)

The undersigned witness certifies that ___________________________________________ ,

known to me to be the same person whose name is subscribed as principal to the foregoing

power of attorney, appeared before me and the notary public and acknowledged signing and

delivering the instrument as the free and voluntary act of the principal, for the uses and

purposes therein set forth. I believe him or her to be of sound mind and memory.

Dated: ____________________________________________ (SEAL)

Witness: __________________________________________

State of __________________________________________ ) ) SS.County of _______________________________________ )

The undersigned, a notary public in and for the above county and state, certifies that

____________________________________________ , known to me to be the same person whose

name is subscribed as principal to the foregoing power of attorney, appeared before me and

the additional witness in person and acknowledged signing and delivering the instrument

as the free and voluntary act of the principal, for the uses and purposes therein set forth (and

certified to the correctness of the signature(s) of the agent(s)).

Dated: ____________________________________________ (SEAL)

(Notary Public)______________________________________

My commission expires ______________________________ .

(The name and address of the person preparing this form should be inserted if the agent

will have power to convey any interest in real estate.)

This document was prepared by:

(Name) ______________________________________________________________________

(Address) ___________________________________________________________________

Page 4 of 4

85

Illinois Department of Public HealthUNIFORM DO-NOT-RESUSCITATE (DNR) ADVANCE DIRECTIVEPHYSICIAN ORDERS FOR LIFE-SUSTAINING TREATMENT (POLST)HIPAA (HEALTH INSURANCE PORTABILITY AND ACCOUNTABILITY ACT of 1996) PERMITS DISCLOSURETO HEALTH CARE PROFESSIONALS AS NECESSARY FOR TREATMENTFollow these orders until changed. These medicalorders are based on the patient’s medical conditionand preferences. Any section not completed doesnot invalidate the form and implies initiating alltreatment for that section. With significant changeof condition, new orders may need to be written.See also Guidance for Health Care Professionals athttp://www.idph.state.il.us/public/books/advin.htm.

Patient Last Name Patient First Name MI

Date of Birth (mm/dd/yy) Gender M F

Address (street/city/state/ZIPcode)

ACheckOne

CARDIOPULMONARY RESUSCITATION (CPR) Patient has no pulse and is not breathing. Attempt Resuscitation/CPR (Selecting CPR means Intubation and Mechanical Ventilation in Section B is selected) Do Not Attempt Resuscitation/DNR

BCheckOne

MEDICAL INTERVENTIONS Patient has pulse and/or is breathing.Comfort Measures Only (Allow Natural Death). Relieve pain and suffering through the use of medication byappropriate route, positioning, wound care and other measures. Use oxygen, suction and manual treatment ofairway obstruction as needed for comfort. Patient prefers no transfer to hospital for life-sustaining treatments.Transfer if comfort needs cannot be met in current location. Treatment Plan: Maximize comfort throughsymptom management.Limited Additional Interventions In addition to care described in Comfort Measures Only, use medical treatment,antibiotics, IV fluids and cardiac monitor as indicated. No intubation or mechanical ventilation. May consider less invasiveairway support (e.g., CPAP, BiPAP). Transfer to hospital if indicated. Generally avoid the intensive care unit.Treatment Plan: Provide basic medical treatments.Intubation and Mechanical Ventilation In addition to care described in Comfort Measures Only and Limited AdditionalInterventions, use intubation and mechanical ventilation as indicated. Transfer to hospital and/or intensive care unitif indicated. Treatment Plan: Life support measures, including intubation, in the intensive care unit.Additional Orders _____________________________________________________________________________

CCheckOne

(optional)

ARTIFICIALLY ADMINISTERED NUTRITION Offer food by mouth, if feasible and as desired. No artificial nutrition by tube. Additional Instructions (e.g., length of trial period) Defined trial period of artificial nutrition by tube. _____________________________________________ Long-term artificial nutrition by tube. _____________________________________________

D DOCUMENTATION OF DISCUSSION (Check all appropriate boxes below)Patient Agent under health care power of attorney Parent of minor Health care surrogate decision maker (See Page 2 for priority list)

Signature of Patient or Legal RepresentativeSignature (required)

_______________________________________________

Name (print) Date

_________________________________ ____________

Signature of Witness to Consent (Witness required for a valid form)I am 18 years of age or older and acknowledge the above person has had an opportunity to read this form and have witnessed thegiving of consent by the above person or the above person has acknowledged his/her signature or mark on this form in my presence.

Signature (required)

_______________________________________________

Name (print) Date

_________________________________ ____________

E SIGNATURE OF ATTENDING PHYSICIANMy signature below indicates to the best of my knowledge and belief that these orders are consistent with the patient’s medical condition and preferences.

Print Attending Physician Name (required)

______________________________________________________________

Phone

( ) _________ - ______________

Attending Physician Signature (required)

______________________________________________________________

Date (required)

_______________________Page 1

When not in cardiopulmonary arrest, follow orders B and C.

UNIFORM DNR ADVANCE DIRECTIVE UNIFORM DNR ADVANCE DIRECTIVE UNIFORM DNR ADVANCE DIRECTIVE

SEND A COPY OF FORM WITH PATIENT WHENEVER TRANSFERRED OR DISCHARGED

UN

IFOR

M D

NR

AD

VAN

CE D

IREC

TIVEU

NIFO

RM

DN

R A

DVA

NC

E DIR

ECTIVE

UN

IFOR

M D

NR

AD

VAN

CE D

IREC

TIVEU

NIFO

RM

DN

R A

DVA

NC

E DIR

ECTIVEU

NIF

OR

M D

NR

AD

VAN

CE

DIR

ECTI

VEU

NIF

OR

M D

NR

AD

VAN

CE

DIR

ECTI

VEU

NIF

OR

M D

NR

AD

VAN

CE

DIR

ECTI

VEU

NIF

OR

M D

NR

AD

VAN

CE

DIR

ECTI

VE

86

87

ESTATE PLANNING GLOSSARY

Administrator: The person appointed by the court to do the same work as the Executor when the decedent dies intestate.

Codicil: An amendment to a will which changes, revokes or adds provisions to it.

Federal Estate Tax: A tax imposed by the federal government and administered by the Internal Revenue Service, on the total amount of property owned or controlled by a decedent on his death, net certain deductions and credits.

Federal Gift Tax: A tax imposed by the federal government and administered by the Internal Revenue Service, on the donor for the amount of property given away during the donor’s life, net certain exclusions and credits.

State Death Tax: A tax imposed by a state govern-ment and administered by that state’s tax agency, on property transferred on the death of a dece-dent. In Illinois, the state death tax is the Illinois Estate Tax which is administered by the Attorney General’s Office.

Estate: All of the property owned or controlled by a person.

Executor: A person or institution nominated to carry out the provisions of a will.

Guardian: A “guardian of the person” is the per-son with whom the minor resides. A “guardian of the estate” of a minor is the person who holds property owned by the minor, as the minor is legally incapable of dealing with his own property until an adult. In Illinois, a person becomes an adult at age 18.

Intestate: A person who dies without a will, thereby leaving the disposition of his or her estate to state inheritance laws under the supervision of the Probate Court.

Joint Tenancy: A form of ownership in which a joint tenant’s interest passes, upon his or her death not to the heirs or will beneficiaries, but to the co-owner or co-owners.

Probate: The court procedure for determining the validity of a will, settling claims of creditors, and supervising distribution of an estate to its beneficiaries. The probate court also supervises the property of a minor or incompetent and adminis-ters the estate of one who dies intestate.

Probate Estate or Property: Property which is subject to probate. Probate property is property owned by the decedent which is disposed of by the decedent’s will and does not pass by law to a co-owner (such as joint tenancy property which passes to the surviving joint tenant) or to a desig-nated beneficiary under a con tract (such as a life insurance policy paid to a named beneficiary).

Residuary Estate: The remainder of an estate after pay ment of taxes, debts, administration expenses, and specific gifts.

Tenancy in Common: A form of ownership in which an undivided interest in property upon the death of the owner becomes the property of his heirs or will bene ficiaries and not his co-owner.

Testator: A person who signs his or her own will. A person who has a will is said to be “testate”.

Trust: A legal relationship in which a person (the settler) transfers title to property or funds to another person or institution (the trustee) to be held, used or administered for another party’s benefit (the beneficiary) to the extent specified. A trust may be established by the settler in his will or in a separate trust agreement executed during the settler’s lifetime.

Will: A legal document executed by an individual with certain formalities which sets forth the distri-bution of his estate after death, names an executor and names a guardian for minor children.

88

89

HEALTH & LEISURE

90

91

“HOW HEALTHY IS YOUR LIFESTYLE?”

“A large part of what people con-sider aging is disease and abuse of the body,” says Dr. Andrew P. Goldberg, M.D., John Hopkins Medical Center. Many of our assumptions about aging and its effects on our bodily systems are not true. Today, people are living longer. But many people fear old age as a period of declining pow-ers and failing health. Muscle weakness, loss of energy, greater susceptibility to illness, and dif-ficulty in getting around are not due to the aging process, but to inactivity and poor nutrition. A century ago, less than one person in ten reached the age of sixty-five. Most of those who did live that long had been worn out by a lifetime of inadequate nutri-tion, widespread disease, and/or backbreaking labor.

Today, relieved of those harsh external pressures, most of us will live well into our 70s and 80s. Our well-being depends far less on our “chronological age”– how old you are according to the calendar, than on our “biological age” – how old your body is in terms of critical life signs. Everyone is affected different-ly by time. For example, a middle-

aged marathon runner may have the leg muscles, heart and lungs of someone half his age, but also have highly stressed knees of someone twice his age. “Psychological age” is how old you feel. Depending on what is happening in your life and your attitude to it, your psychological age can change dramatically with-in a very short period of time. Study after study shows that regular exercise and a healthy diet can slow or even reverse the dete-rioration in fitness, vitality, and independence that we associate with age. Even if you have not been health-conscious in the past, you can still reap the benefits by changing your lifestyle now: whether you’re forty, sixty or ninety.

To get the optimum benefits from exercise, the type and amount have to be tailored to fit your individual body type. You don’t have to consult with a fitness ex-pert to gain from exercise. Just 20 minutes of walking 3 days a week can improve your cholesterol/HDL ratio. No expert advice is needed to benefit from another important route to lon-gevity–a balanced lifestyle.

Most 20-year-olds look alike to a physiologist, but at 70, no two people have bodies that are remotely alike.

92

LongevityThe importance of social ties and life satisfaction to longevity was highlighted in a study of nearly 5,000 men and women. It found that the death rate more than dou-bled among the men, and nearly tripled among the women with the fewest social contacts, com-pared with those

who had the most social contacts.

A similar increase in mortality was noted among those who ex-pressed the least satisfaction with life. The psycho-social adjust-ments throughout life are more important than genetics and other biological factors in determining lifelong health and longevity. The findings suggest that the intensity of stress is less important than how a person handles it in order to survive. Our hopes for a quality life in retirement seem to be tied to a commitment to our physical and mental health. This information is intended to remove uncertainty about what it will take to live well in old age.

A study of 7,000 Southern Californians found that the oldest follow seven simple rules:

1. Sleep 7 - 8 hours a night

2. Eat breakfast

3. Don’t eat between meals

4. Don’t be significantly over or underweight

5. Engage in regular physical activity; sports, gardening, and/or long walks

6. Drink alcohol moderately; no more than two drinks a day

7. Don’t smoke

The study found that a 45-year-old man who fol-lowed these rules could expect to live another 33 years, but if he followed only three of them or less, he would probably die within 22 years.

93

LIFESTYLES

EXERCISE

A large percentage of U.S. adults are sedentary. As a result, they are squandering away one of the greatest protective measures available in the fight against heart disease. Studies show physical activity greatly decreases the risk of heart disease. Good nutrition coupled with a regular program of aero-bics and strength-building exer-cises can have a beneficial effect on the health of almost everyone.

NUTRITION

Nutrition is today’s new medi-cine. There is plenty of evidence that what we eat makes a big difference in speeding recovery times, shortening hospital stays, and keeping you out of a nursing home. We should be able to delay or reverse many problems and symp-toms associated with the aging process by increasing our intake of protective nutrients. Approximately 65% of adults in the U.S. are considered obese, and experts say that this percent-age will only increase over time. Obesity is a well-established cause of diabetes and hypertension—all coronary risk factors.

Obesity is largely due to a combination of excessive caloric intake and a sedentary lifestyle. Obesity also increases the risk to the kidneys and gallbladder. The intake of dietary fats, except olive oil and fish oil, enhances the risk of developing cancers of the breast, ovary, colon, and prostate. Cancers of the pancreas and kidneys may also be related to dietary fat. It is advisable to cut the total amount of fat in your diet to less than 20% of total calories, and saturated fat to less than 10%.

Exercise:1. Improves functional work capacity

2. Lowers heart rate

3. Lowers blood pressure

4. Helps to reduce weight

5. Improves response to stress

6. Enhances our ability to main- tain ideal cholesterol

7. Helps prevent adult diabetes

94

+3 YEARS +2 YEARS +1 YEAR 0 -1 YEAR -2 YEARS -3 YEARS TALLY

Calculate How Long

You Will Live

MEDIAN LIFE EXPECTANCY

Age Male Female Risk Factor

20-59 73 80 use table as shown

60-69 76 81 reduce loss or gain by 20%

70-79 78 82 reduce loss or gain by 50%

80+ add 5 years to current age reduce loss or gain by 75%

Gain in Life Expectancy No Change Loss in Life Expectancy

HEALTH

Blood Pressure

Total Cholestrol

HDL Cholesterol

Compared with others my age, my health is:

LIFESTYLE

Cigarette Smoking

Second-Hand Smoke Exposure

Exercise Average

Saturated Fat in Diet

Fruits and Vegetables

FAMILY

Marital Status

Disruptive Events in Past Year^

Friends Seen More Than Once/Month**

Parents Age At Death

+3 YEARS +2 YEARS +1 YEAR 0 -1 YEAR -2 YEARS -3 YEARS TALLY

+3 YEARS +2 YEARS +1 YEAR 0 -1 YEAR -2 YEARS -3 YEARS TALLY

Between 90/65 & 120/81

Less than 90/65 w/o heart disease

Between 121/82 & 129/85 130/86

Between 131/87 & 140/90

More than & 151/96

Between 141/91 & 150/95

—

— —

—

— —

— — —

—

— — — — —

— —

—

—

— — — —

— — —

— — — —

Less than 160 161-200 201-240 241-280 More than 280

More than 55 45-54 40-44 Less than 40

Excellent Very Good Fair Poor Very Poor

NoneEx-smoker

for more than 5 years

Ex-smoker for 3-5 years

Ex-smoker for 1-3 years

Ex-smoker for 5 mo. to 1 year

Smoker, 0-20 pack-years*

Smoker for more than 20

pack-years

None0-1 hour per day

1-3 hours per day

More than 3 hours per day

+90 min./day(walking, etc.)

for +3 yrs

+60 min./day(walking, etc.)

for +3 yrs

+20 min./day(walking, etc.)

for +3 yrs

+10 min./day(walking, etc.)

for +3 yrs

+5 min./day(walking, etc.)

for +3 yrs

less than 5 min. per day None

More than 40%Less than 20% 20%-30% 31%-40%

5 servings per day

None

Happily married man

Happily married woman

Single woman, widowed man

Divorced man,widowed woman

Divorced woman

Single man

Three Two One

One Two Three

Both lived past 75

One lived past 75

Neither lived past 75

Start with your median life expectancy

* A pack-year is one pack per day for one year. ^ Deaths of family members, job changes, moves, lawsuits, financial insecurity, etc.** People who offer support through disruptive events (applicable only when two or more events occur).

Your estimated life expectancy

95

YOUR USE OF FREE TIME

Free time and how to use it has become a problem in our society. The good life, as it is portrayed in America, conjures up someone with an ample supply of time and money participating in a wide vari-ety of leisure activities. The reality is only a small percentage of Americans possess the requirements for a true leisure lifestyle. There is overwhelming evidence that a lack of free time is a central problem for most Ameri-cans. This phenomena permeates working Americans life until retire-ment or when a similar departure from the workplace takes place. It is only then that a leisure life-style deficiency becomes a problem of too much, too soon.

Based on the 2010 Census report, the age 85 and older population grew from just over 100,000 in 1900 to 6.0 million in 2010 com-pared with the population aged 65 to 84 which grew from 3 million in 1900 to 39 million in 2010. The average life expectancy at birth rose from 47.3 in 1900 to 78.1 in 2010. As life expectancy rates con-tinue to rise, the task facing us is to develop a leisure lifestyle early enough in life to use in the retire-ment years. A leisure lifestyle will help us use our free time in a constructive and enjoyable manner. Leisure is time being used constructively. It suggests a lifestyle stressing partici-

pation, learning, and developing values related to the use of time. Retirement gives us many new ways of using time, but we must de-cide how to use it wisely. If we haven’t already developed some kind of leisure lifestyle, we might drift into a wide variety of leisure pursuits that may not be in our own best interest.

More than two thousand years ago, a Greek phi-losopher said, “Time is the most valuable thing a man can spend.” Everyone is giv-en exactly the same amount of time each day. It is a limited amount, and it is impossible for anyone to be so rich in time as to enjoy every-thing which time brings. How you use your free time de-termines how you value time. Your work day schedule probably became habit, but now that you are retired how do you spend all of your free time? Is it often left to chance or dictated by others? When you share your free time with others, is it stimulating and enjoyable, or habit and obligation? There is often an upside-down relationship between what people enjoy doing in their free time and what they actually do. Many find themselves spending too much time watching television, and not enough time doing the things we really enjoy.

U. S. LEISURE TIME

What are your two or three fa-vorite leisure time actvities?

Reading 29%

Watching TV 18

Time with Family 14

Computer Activities 9

Going to Movies 7

Fishing 7

Gardening 6

Walking 6

Playing Team Sports 6

Exercising 5

96

Compare Your Free Time and Your Work TimeHow you spend your working

hours determines to some extent how your free time should be spent, because leisure activities can com-pensate for, or complement, your work environment. Ask yourself what needs are not being met by your job? If

your work duties are tedious, your leisure time should com-

pensate for the shortcomings of your job and working conditions. How often do you come home, plop in a chair, and escape

into television? How often do you use your free time to advance your work interests? There are no right or wrong answers to these questions. Their purpose is to clarify what is best for you—what are your values and goals at this time in your life? That should help you decide what you need to be doing. There may be certain things you haven’t done in years that you really enjoy doing. You should learn how you use, not misuse, your free time and also what might constitute a leisure lifestyle.

Rate your job on how well it meets the personal needs listed below, using the following key:

1. Almost Never 2. Rarely 3. Occasionally 4. Fairly Often 5. Almost Always

Then go through your personal needs and assess how your leisure rates on each. Also rate how important each need is to you (10 is high, 1 is low).

Degree of My Work My Leisure Importance Provides Provides to Me

PERSONAL NEEDS

Mental Challenge

Self-Expression

Recognition

Personal Development

Relaxation

Creativity

Good Communication

Prestige

Self-Esteem

Physical Well-Being

Enjoyment

97

USE OF TIME

Sleeping & Eating 70

Working 40

Family Activities 12

Commuting 10

Shopping, Home Repairs 10

TV, Reading, Radio 10

Recreation, Socializing 8

Outdoor Activities 5

Religious Activities 3

TOTAL 168 HOURS

HOURS PER WEEK

HOURS PER WEEK

Sleeping & Eating 70

Hours to Fill 98

TOTAL 168 HOURS

WORKING YEARS

RETIREMENT YEARS

Meaningful use of time is the most underrated problem facing retirees today. A full and busy week during the working years (upper chart) must be abruptly

restructured after retirement. How will you fill the hours of your retirement week? Complete this exercise (bottom chart) by allocat-ing time for your future activities.

98

99

APPENDIX

100

101

WHERE TO GO FOR HELP

STATE AGENCIES

State Employees’ Retirement System2101 South Veterans ParkwayP. O. Box 19255 Springfield, IL 62794-9255217-785-7444

SERS Chicago OfficeMichael Bilandic Building160 North LaSalle Suite S-220Chicago, IL 60601312-814-5853

Group Insurance Inquiries

Central Management Services 217-782-2548

SERS Group Insurance 217-785-7150 or 312-814-5853

Deferred Compensation 217-782-7006

Department of Human Rights (Issues of Job Discrimination)James R. Thompson Center100 West Randolph St. Suite 10-100Chicago, IL 60601312-814-6200

Department of Public Health 535 W. Jefferson St. Springfield, IL 62761217-785-4977

Department of Health Care & Family Services Prescott Bloom Building 201 South Grand Avenue EastSpringfield, IL 62763800-447-4278 Child Support Action Line800-447-4278

U.S. GOVERNMENT AGENCIES

Consumer Product Safety Commission 4330 East West HighwayBethesda, MD 20814800-638-2772

Social Security Administration800-772-1213

Consumer Information Center719-295-2675email: pueblo@gpo.gov

NOT-FOR-PROFIT AGENCIESConsumer Credit Counseling Center800-769-3571

102

GLOSSARY

Agency Retirement Coordina-tor: Person in each state agency who interacts with SERS and the employees of the agency.

Alternative Formula: The retire-ment formula for state employ-ees in high-risk positions.

Automatic Increase in Retire-ment Benefits: A 3% increase of a member’s retirement benefit each January 1 following the first full year of retirement or age 60, whichever is later.

Beneficiary for Lump Sum Death Benefit: The beneficiary chosen by the member to receive SERS benefits.

Civil Union Partner: A legal partner who is entitled to the same legal obligations, responsi-bilities, protections and benefits as a spouse in Illinois.

Credited Service: Ther total service certified to a member’s record.

Coordinated/Covered: A SERS member who contributes to So-cial Security.

Defined Benefit Plan: Provides a predetermined benefit amount using a formula combining ser-vice credit and salary.

Pension: Retirement annuity paid for the life of the member.

Qualifying Period: A period of state employment prior to becoming a SERS member. Employees hired after December 1, 2010 don’t serve a qualifying period.

Reciprocal Retirement Systems: There are thirteen Illinois public retirement systems participating in the Retirement Systems Reciprocal Act.

Regular Formula: The retirement formula provided for State employ-ees in positions not designated as high-risk.

Rollover: Postponing taxation of distributions by rolling over the payment to another qualified plan or to an IRA or Roth IRA.

Rule of 85: Allows employees to retire when their age years of service equal 85 or greater. Members must have at least eight years of service to qualify for this benefit.

Service: The total credited service certified to a member’s account.

Survivor Annuity Beneficiary: A beneficiary designated by statute to receive a monthly annuity upon the death of the member.

Tax-Sheltered/Tax-Deferred: Con-tributions made by a member that are not taxed until a benefit is paid.

Final Average Compensation: For retirement and survivor benefits, final average compensation is the 48 highest consecutive months of earnings within the last 120 months of service. For death and disability benefits, final average compensation is the rate of compensation at the date of death or disability or the 48 high-est consecutive months of earn-ings within the last 120 months of service, whichever is greater.

Level Income Option: A choice for coordinated members where their SERS benefit is increased for the time before receiving Social Secu-rity benefits. Their SERS benefit is reduced when Social Security benefits begin. This option provides a leveling ef-fect throughout a member’s retire-ment years.

Member: An active SERS employee or any former employee who has contributions in their account but hasn’t taken a refund nor is receiv-ing a retirement annuity.

NonCoordinated/Noncovered: A member of SERS who does not contribute to Social Security. Optional Service Credit: Periods of employment that can be purchased for additional service credit. Exam-plrs include military time, qualify-ing periods, repayment of a refund, leaves of absence and short periods of employment.

103

EDUCATION FOR TOMORROW’S CHOICES

Date: Location:

To help improve our program, we would appreciate your completing this evaluation form.

Rate each item as follows: Speaker’s Clarity of A= Excellent B= Good C= Average Knowledge Information Value of D= Below Average F= Poor of Topic Provided Topic to Me

Orientation/Planning

System Benefits

Legal Issues

Financial Planning

Deferred Compensation

Rate the program on each of the following items by circling one response:

Number of Sessions: too many just right too few

Length of Individual Sessions: too long just right too short

Opinion of usable information in program: good average below average

Comfort level of audience group size: too large just right too small

1. Did the program inspire thought for future planning? yes no maybe

2. Did the program raise questions in your mind about what actions you should take to start planning effectively for retirement? yes no maybe

3. Did the program provide a method and resource to answer your questions concerning retirement? yes no maybe

4. Did the program motivate you to undertake concrete planning for retirement? yes no maybe

5. Do you have any suggestions on how the program can be improved?

6. Comments:

EVALUATION FORM

104

105

WHICH STATE’S TAX LAWS ARE BEST IF YOU ARE RETIRED?

If you plan to move to another state when you retire, you should

examine the tax burden you’ll face when you arrive. State taxes are

important to everyone, but retirees have extra cause for concern

since their income may be fixed. Many people planning to retire use

the presence or absence of a state income tax as a litmus test for a

retirement destination. This is a serious miscalculation, since higher

sales and property taxes can more than offset the lack of a state

income tax.

The following information pertains to the taxation of a SERS

retirement pension in each of the 50 states and D.C. For definitive

tax laws, you should consult a tax professional. For more informa-

tion on the Web, go to www.retirementliving.com

SERS pensions are fully taxed for state income tax purposes

Arizona Montana

California Nebraska

Connecticut North Dakota

D. of C. Rhode Island

Indiana Vermont

Kansas Wisconsin

Maryland

States that tax SERS pensions, if the pension amount exceeds certain limits. Consult with a tax professional for particulars

Arkansas

Colorado

Delaware

Georgia

Idaho

Iowa

Kentucky

Louisiana

Maine

Minnesota

Missouri

New Jersey

States with little or no personal income tax and therefore no state tax on SERS pensions

Alaska South Dakota

Florida Texas

Nevada Washington

New Hampshire Wyoming SERS pensions are exempt from state income taxes

Alabama Michigan

Hawaii Mississippi

Illinois Pennsylvania

Massachusetts

New Mexico

New York

North Carolina

Ohio

Oklahoma

Oregon

South Carolina

Tennessee

Utah

Virginia

West Virginia

106

NOTES